Ajitansh Kar, Gurugram, 20 May 2024
For several factors, India has been amongst the markets with the strongest growth over the last four years. One of them is the rise in liquidity, particularly from domestic retail participants and foreign investors. Although a lot of people have begun investing in the stock market, they do not have the necessary strategy or follow through to generate wealth in the future. For the sole purpose of making a quick profit, many people concentrate on purchasing and selling stocks based only on recommendations from others. The purpose of this article is to help readers identify the type of investor they are and help them select the best course of action to reach their financial objectives.
Selecting whether to hire a wealth manager is the first stage in the financial planning process. Your life will be easier if you choose the former option because all you must do is tell the financial planner what your desired goals are, and she will take care of the rest. The first step in being your own financial planner is deciding what your objectives are and how soon you want to reach them. As a result, you must choose whether you are an aggressive, balanced, or a low-risk investor. Although there are many different financial instruments available for investing, we will limit our discussion to the more well-known ones, which include stocks, bonds, mutual funds, and commodities like gold and silver.
Individuals who invest aggressively typically take on more risk to maximize their profits. These investors usually concentrate on investing over comparatively shorter time durations. The ideal asset class to invest in for these kinds of individuals is stocks. Since small and mid-cap companies have greater beta values than large-cap stocks and blue-chip stocks, they may be better suited for individuals adopting this strategy. While it may be profitable to be aggressive, it must be kept in mind that losses are also very large in an adverse market. Investing in mutual funds that invest in small and mid-cap stocks allows individuals, who might not wish to deal in stocks directly, to circumvent the selection process.
For those who prefer to minimize risk, a well-rounded approach would be the most appropriate. To diversify risk and maintain a balanced approach, investors generally use a combination of various kinds of assets. The most common split among investors is a 50-30-20 split, in which half of the capital is allocated to large-cap stocks and the other half is placed in small and mid-cap stocks. Hard assets, or commodities like gold and silver, which have been shown to be safe investments over many years, account for thirty percent of the capital. The remaining funds may also be used by certain investors to purchase bonds or to maintain cash in hand for emergencies.
The final group of investors is that which chooses to assume the least amount of risk. They would only consider investing in large-cap stocks to receive consistent returns, and most of their portfolio would be made up of bonds and tangible assets. Those looking for little volatility and steady profits over an extended period may find this technique helpful.
Additionally, it must be kept in mind that the purpose of financial planning is not only capital appreciation but also capital preservation. For this reason, one should also think about including some insurance policies in their portfolio, as unfavourable circumstances could put a family in a difficult financial situation.
