Investing should be led by clearly-defined goals — retirement, home down payment, children’s education, purchasing an asset, international holiday or anything you aspire to. Each goal has two guiding lights: the time left for you to achieve it, and the funding it will require.
For example, say you need to save Rs. 30 lakh for your children’s college education due in 15 years. This helps you to work backwards and calculate how you’re going to save for this goal, and which instrument is best suited to achieve it.
This being a long-term goal and therefore, you decide to invest. Rs 9,100 per month in a mutual fund SIP with a returns expectation of 8.12% per annum. The investment will give you Rs. 32.04 Lacs in return, if you invest in a medium risk portfolio. But investing only to save taxes is akin to not having an investment goal at all. This may have repercussions on the selection of the right instrument, the rate of return it offers, the tax-efficiency, liquidity and costs of the investment, as well as the long-term state of your finances.
After you have these aspects sorted, the next ideal step is to take help of an experienced financial advisor who can help you with alignment of your goals with your investment. Always remember that certain elements are necessary and has to be present to build a strong scalable portfolio. Let me suggest 3 important elements that can help you to build a portfolio
The more customizable your investments are to your goals, the easier it will be to achieve them in a long run. Your priorities are going to change over the years – your investments should reflect your changing life
Asset allocation helps in managing volatility by combining asset classes such as stocks, bonds and cash in a portfolio. Ideally, asset allocation manages and maintains a proper level of risk weighed against desired returns. Your advisor will help you to determine which asset allocation model is best suited to your situation
As the market moves, different asset classes will grow at different rates which over time can change the structure of your portfolio with your original investment goals. Periodic rebalancing of your portfolio can bring back to its intended investment mix
It is always important to remember that when you align investments with your goals and your time horizon it will help you to evade undue surprises and generate optimum returns with time.
Rahul Jain, Head, Personal Wealth Advisory, Edelweiss