Before making a Portfolio

Saving for the future is very important for every person. Every sane man slowly makes the investment portfolio of the different options of investment - stocks, gold, mutual funds, etc. are included. 

But before we jump on any investment instrument we should ask our self a million dollar question. I.e. why should I invest?

The answer to this simple question before coming to where to invest will make investment experience very different. Whenever we invest we forego our current needs or want to have a better and comfortable future. So it becomes important to choose an instrument which can deliver better real return otherwise investing become just savings.

The first step in the process is making a personal financial plan. Making a financial plan is like preparing an itinerary before starting your journey. It can make your journey less stressful, more fun and more successful. Financial planning starts with setting goals. After all you need to know where you want to go before you can decide how to get there. Your goals can be categorized as short term, medium term and long term.

The second step is to get a realistic picture of where you are now financially. Write everything like what you owe, what you own, your monthly expenses and income. This will help you to understand your current scenario better. Even if its not a pretty picture now, that’s OK.

Third step is to understand the potholes and evaluate what if scenario? Like stock market down turns, recessions, losing job, paying for illness, permanent disability, death. You may not be able to avoid these potholes but you can minimize their financial impact.

Fourth step is to clarify, evaluate and prioritize your goals. Your goals likely will require money so you should try and know how much money for the goal is needed in ideal circumstances. Smart investing means investing with specific purpose.

Fifth step is allocating investments to appropriate goals, keeping in mind the timeframes, taxation and risk tolerances. Here comes choosing instruments like equity, gold, real estate, bonds, deposits, art, commodity, currency etc. keep the portfolio diversified and cost efficient.

Here are some tips to make smart investments.

1                      understand the difference between saving and investing

2                     put your financial house in order first

3                     clarify your goals

4                     don’t just chase the highest returns

5                     understand your own risk tolerance

6                     hold realistic returns expectations from market

7                     follow a detailed written plan

8                     allocate investments according to goals and needs

9                     diversify your investments

10                  don’t try to time the market just stay in the market

11                   start investing early, invest regularly and automatically      

12                   pay attention to investment expenses

13                   consider taxes and inflation for real returns

14                   rebalance your portfolio regularly

15                   monitor and revise your investment plan