In an investing journey, it’s important to clearly understand the risks of investing, product suitability and have a well-set investment objective. However, many of us are guilty of ignoring basic ground rules of financial planning and end up with poor investing experience. Therefore, it is important to understand the prerequisites of building a portfolio for long-term wealth creation.
Here are some key prerequisites:
Understand market risks
The idea of investing is to grow one’s money over time. However, avenues of investing have both their share of risks and return potentials. Investing in low-risk assets would generally lead to a lower expectation of returns, while investing in assets with higher-risk returns would generally be compensated with higher returns.
As investors, even though it may not always be easy to understand the complex workings of the capital market, it is important to be aware and understand the market characteristics and risks associated with an asset class before investing. Do note that knowing the market risks along with a continuous effort to improve your knowledge may go a long way in improving your investing journey.
Know your risk profile
Most investors when they begin their investing journey tend to ignore the aspects of knowing their risk profile. Investors must be well-acquainted with their financial goals and investment horizon to assess the level of risk they are ready to take on. Investing without assessing one’s risk-taking ability could lead to misallocation into funds that may eventually not be aligned with initial investment objectives.
Furthermore, investors tend to misjudge their ability to bear risks during good seasons when their portfolios perform exceptionally well. It’s during the tough season when investors tend to realise their true potential for bearing risks. Therefore, it’s critical to be aware of the risk profile, review it periodically and adhere to the set financial goals.
Start early
The biggest advantage of starting early is that it helps you accumulate a larger corpus and achieve your desired goals even with smaller contributions. Staying invested for a longer tenure means benefiting from the power of compounding! Furthermore, starting early enables investors to understand and tackle the risks of market volatility well and aim to generate optimal returns over the long term. Systematic Investment Plans (SIPs) are tools that enable investors to start early at ease.
Diversify your portfolio
Another important aspect of wealth creation over long term is to have a well-diversified portfolio. A well-diversified portfolio helps in balancing the risk-reward optimally and in achieving the desired objectives without reacting to the big surprises thrown by the markets.
Rely on expert advice
While ‘DIY’ or ‘Do it Yourself’ is a good idea, not everyone can carefully assess the risks and opportunities to monitor their investments. Relying on experts not only aids in identifying potential risks and making informed investment decisions but also helps in saving an individual’s time and efforts. Since investments require continued monitoring and rebalancing of allocations, an expert ensures that you stay aligned with the stated goals and objectives during the investment journey.
If you are still thinking of when to start, the answer is NOW!
The gap between your goals—of buying a car/education corpus/retirement corpus—and finally realising your dreams is the action that you take today. So, why wait? Take your first step towards financial independence by starting your investment journey, today!
Disclaimers: The information on this document is provided for information purposes only. It does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it constitute any prediction of likely future movements in rates or prices or any representation that any such future movements will not exceed those shown in any illustration. Users of this document should seek advice regarding the appropriateness of investing in any securities, financial instruments or investment strategies referred to on this document and should understand that statements regarding future prospects may not be realized. The recipient of this material is solely responsible for any action taken based on this material. Opinions, projections and estimates are subject to change without notice.
UTI AMC Ltd is not an investment adviser, and is not purporting to provide you with investment, legal or tax advice. UTI AMC Ltd or UTI Mutual Fund (acting through UTI Trustee Company Pvt. Ltd) accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents or associated services.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
