6 Simple Steps to an Effective Investment Strategy

There is no magic wand which will double triple your money on the drop of a hat. Investments are like a tree or more like a newborn baby. It needs to be nurtured and taken care of in order to grow – healthy and strong. Like a tree, if it grows well you will be able to harvest the fruits of your labor. Hence you need to pay attention to your investments. On the other hand, it is not something like rocket science – very complicated and beyond the understanding of a normal individual. Henceforth, a well planned financial planning strategy can be a strong pillar for building sound financial health in your life.

You must understand that you cannot invest until you EARN and SAVE. It is very important for every individual to save to an extent the needs of the family are not getting affected. Save as much as you can without compromising on needs. Savings need to be converted into investment in order to ‘make money work for you’.
Investments require a little understanding about various investment option and their advantages/disadvantages. If you follow a simple 6 step strategy you can also create a healthy ‘Tree’ to reap the ‘Fruits of Your Labor’.

1. Set your objectives: You should be very clear about your purpose and goals of investment, the time horizon, and expectations. Ask yourself – Why am I investing? What is the target amount? How long can I keep investing? A clear objective helps in selection of right investment assets.
2. Do not invest in an asset you do not understand: Get yourself updated about various investment assets. Never invest in an asset which you do not understand. If you don’t understand take help from Professional Experts. Never, I repeat never invest based on tips and advice of friends and relatives, unless otherwise, you understand the asset. There is no harm in taking an expert on board.
3. Be regular: Do not wait for the right time to start the investment. Whenever you have the savings invest it. Even though small, regular investments grow better than expectations. A tree needs small quantities of water at a regular interval.
4. Diversify but do not diversify too much: Based on your savings or investible funds, invest in different assets, to take care of the risks associated with a particular class or type of asset. But too much diversification is also difficult to manage and doesn’t give any additional advantage. So, carefully chose the different class of assets / or within the same class different assets.
5. Invest and forget doesn’t work: If you want to see the tree grow, take care of it, remove the weeds. If you feel that by investing in one asset and not looking at it for very long period help it grow, it doesn’t work that way. Regularly monitor the performance of your investment – based on the investment horizon.
6. Do not mix investment and speculation and gambling: Invest with a long-term objective/perspective. You must understand the difference between Investment and Speculation. Speculation is for short-term gain with a very high risk involved whereas Investment is for long-term gains with lesser risk. As most of the ‘Fruit’ tree with long life take time to start fruiting, investment also takes time to reflect true value.

Refer to these articles for more investment tips.

Keep in mind that too much of anything or everything is not good. Create a portfolio for the long term. Keep investing. Sell only when you have an acute need / very hard pressed for money. Also, consider buying a Term Life Insurance Plan at an early stage of life. It will save you a lot of money in long-term.

Bonus Tip: See our recommendations for the best investment brokerages for beginners.

Article By :
Prof. Sanjeev Bajaj,
GM – Admission & Associate Professor in Finance, Calcutta Business School, Kolkata
Brief Profile: Prof. Sanjeev Bajaj has done his MBA with Finance specialization in the year 1992. He has a total of 25+ years of rich experience which includes 11 years in corporate and 14+ years in academics. He has worked with Rai University, Raipur; IMIS Bhubaneswar; XISS, Ranchi etc. He teaches at Post Graduate Level specialization finance courses like Security Analysis and Portfolio Management, Project Appraisal and Finance, Strategic Financial Management, Insurance and Risk Management. He is interested in promoting Financial Literacy among masses. He is a guest faculty at a number of institutions and has conducted MDPs for many corporate like Central Coalfields Ltd, Hindalco, etc. He conducts Investor Awareness Programs for various financial institutions. He is also a master trainer for “Train the Trainer” programs.

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