Life is all about choices. We’ve come this far after making many choices and having some regrets. Be it which course to pick, which college to go to, or which offer letter to accept, we have always weighed our options, and after much consideration, chose one. And here we are today, trying to choose where to invest, how much to invest, and when.
Life throws multiple options at us. What we pick and the ideology behind it sets the course of our lives.
Quite often, we find ourselves at crossroads, where we are required to make an important decision. Similarly, choosing an investment option for yourself is like choosing a path at the crossroad, and choosing the right one can serve you very well as move ahead in your life.
Where Should I Invest?
Investment options are vast and picking the right assets gets overwhelming. Stocks, debt instruments, mutual funds, bank deposits, gold, real estate, cryptocurrencies, and the list goes on. Picking the right asset is extremely crucial. For this, you need to ask yourself certain questions to understand your risk tolerance levels, investment objectives, and investment horizon.
Mutual funds have become the most preferred investment option amongst investors. This is because of the instant portfolio diversification they offer. With mutual fund investments, you get immediate access to a diversified portfolio of stocks and debt instruments. Thus, they are considered one of the best and simplest investment options available.
Furthermore, within mutual funds, there are a variety of schemes catering to different investment needs. The fund choice depends on your financial goal, investment tenure, and risk tolerance. The choice between actively managed funds and passively managed funds can also impact the returns that you may expect. Read our blog on Active investing vs Passive investing - which one is for you? To understand which type of fund best suits your needs.
How Much Should I Invest?
After shortlisting an investment, the next question would be, “How much should I invest?” The answer is subjective. The amount largely depends on your goal corpus amount, tenure, financial position, and the number of dependents.
However, there's a rule that will help you arrive at a number, the 50:30:20 Budget Rule. As per the rule, you must spend 50% of your salary on your needs (house rent, food, groceries, transportation, bill, and utilities). 30% towards your wants (shopping, dining, travel, and entertainment). The remaining 20% must be utilized towards your savings and investments.
Therefore, create a plan for yourself. Budget your needs and wants. And try to allocate a minimum of 20% of your income towards investments.
When Should I Invest?
Moving on to the inevitable question – “When should I invest?” Well, the hard truth is that you should've done it yesterday, but sadly we cannot go back in time. However, what we can do is make the best of what we have. Thus, the best time to start investing is today. In fact, right now. Losing time is like losing money in the investment world.
Most investors try to time the market. But humans are inherently bad risk-takers because of our biases and it’s been shown multiple times over that predicting short-term market moves is impossible. It is wise to avoid timing the markets.
Investing regularly across different market levels will work in your favour. This helps in averaging out the cost and market volatility. Systematic Investment Plans (SIPs) in mutual funds help you regularly invest in a disciplined manner. Here, you can invest a fixed amount regularly (say, every month) and build the desired corpus over time.
Another important aspect while investing is to have a long-term approach. Investing in the markets is a risky business. Thus, you must have a long-term investment tenure to average out the market volatility and generate greater returns.
Let Us Help You
The process of identifying the investment amount and selecting the right funds for your goals may sound daunting. Don't worry. We've got your back. You can leverage our platform that uses Nobel Prize-winning Modern Portfolio Theory to create a personalized portfolio that’s tailored for you.
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