Whenever we wish to buy any shares or like to invest our money, we have a tendency to take help from people we know. This is quite normal and is also advisable to consult and ask people around you before you make any investment. After all, you will be spending your hard earned money for your better future.
But, there is one mistake which we all do; we follow the footsteps of others and don’t analyze things on our own. When it is said to consult others, it is not meant to follow how they have invested their money. You have to understand that every individual has different needs and thus invest money accordingly. There is a possibility that the person you consulted has different needs from you and thus his/her way of investment is not going to serve your purpose.
What’s your reason to invest?
In order to invest at a right place, you need to understand few things first. You should be aware about your motive to invest. Generally, we all aim to secure our future by investing into shares and mutual funds. Mutual funds are more secure than shares but also are little slower when it comes to return on investment. If you are investing in shares, then you have to assess your risk factors and should know how much risk you can take during bad times.
Without taking your risk factors into consideration, investing in funds may lead you to various problems. For sure no one is looking for any sort of trouble. Always remember, every individual has different financial requirement and risk factors differ from person to person. So, if your friend is investing in a particular share, then just don’t follow him. Wait, assess your financial status and risk, and then invest on it.
Is it a Long term or short term Investment?
You should keep in mind the investing period. Some look for a short term investment and some go for long term. This differs according to the requirement of an individual. So, may be the person you consulted had a requirement for the short term and thus his/her technique is not going to meet your long term requirement. Thus, you need to understand your time horizon and invest accordingly.
When you need cash for emergency…
The liquidity requirement of every individual is different. Liquidity implies how soon we can get the money. The requirement and need of it differ and thus we can’t just follow the footsteps of others. Imagine that are investing with a motive to get return sooner but you invested in a plan that would take a couple of years more than your requirement. In such condition, you will be helpless and it would seem worthless to have invested in such a plan. Thus, it required that you do a proper research and study of any plans before investing. After all, you would not expect to get yourself into any sort of trouble.
What is your Tax bracket?
The next point is the tax implications. This certainly is different and you are not paying equal tax as your friend or colleague. So, why do you want to invest the same amount in the same investment plan as them? This isn’t wise at all. So, make sure that you have done all the necessary tax implication before you invest in any plan. And it is always wise to choose the one which will suit your pocket and need.
Create a Customized Investment plan
And at last, we all want to invest in plans to get a good return. So, if you see that the plan is not giving you a good return then why to invest in that plan? Just to make others happy by following their footsteps is not going to serve your motive of investment. You need to make sure that the plan in which you invest is beneficial to you. You need to get a good return by investing in that plan. Just because others are getting return, doesn’t mean that you will be able to meet your requirement. As we have seen that everyone’s requirement differs and thus you should get return as per your requirement.
There is no harm in taking advice and asking your colleagues or friends about investment. But, when you are going to invest your money, it is always advised to do a proper research and understand your need. Without doing this, you may end up in investing money in a plan which will be completely different than what you need. After all, this money.
(The author is Ramalingam.K an MBA (Finance) and certified financial planner. He is the Director & Chief Financial Planner of holistic investment planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He Can be reached at [email protected])
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Hi, very informative article.
I am 28 years old and I am searching for good investment options. I just came to know about peer to peer lending as an emerging platform in India and wanted your views on that.