If you're reading this, it means you've been investing for some time and have some stock market experience. Congratulations on taking this important step in your financial journey! Now, let's focus on improving your investment skills and maximizing your chances of earning good returns. Here are the key steps to consider:
1.Assessing your financial risk appetite – Determine whether you are a conservative or aggressive investor. Don’t assume you are young and can have high risk appetite. Age doesn't necessarily define risk appetite, so it's essential to evaluate your willingness to take risks. Make sure you go through the list in the article – Calculate your Risk Appetite (which can help you determine if you are someone who can manage taking more risks (aggressive) or less risks (conservative) and adopt that in your investing style.
2. Assessing your financial health– Evaluate whether you are maximizing your savings and gaining insights into your monthly expenses. This step will help you think about your expenses and consider areas where you could potentially reduce costs. Refer to the article on Analyzing your financial capacity for more information.
3. Investment goals – This step will help you define your goals into short-term bucket(within five years) and long-term bucket(five years or more). Each type of goal requires a different approach to investing and offers different investment options. For short-term goals such as a vacation or a car, it's important to prioritize safety and high liquidity. This means avoiding high-risk investments like stocks or equities, and instead considering options like liquid funds or debt funds, which offer lower returns but greater security and the ability to quickly access your funds if needed. On the other hand, for long-term goals like retirement or children's education, there's more room to tolerate market volatility and pursue higher returns. In this case, investing in equity funds may be more suitable as you have more time to ride out market fluctuations and benefit from potentially higher returns.
4. Allocation of savings – Out of 20% or more savings that you should try to have every month, divide it into three major buckets- first building an emergency fund, contributing to a retirement fund and investing the remainder through a SIP (Systematic Investment Plan). As your goal approaches, shift the invested amount to liquid funds and utilize it accordingly.
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