Here we look at five concerns that may be affecting you as an investor and the possible solutions that can help.
The Indian stock market recently hit all-time highs with the BSE Sensex crossing the psychological 60,000-mark. But the current market appears to be highly volatile to equity investors who predict corrections ahead. For debt investors, return on investment doesn’t look very attractive either. Such volatility often leaves investors worried and cautious about their next move. So, they either exit an investment or concentrate their funds on a single instrument. Such moves may have an impact on their long-term wealth-creation goals.
In this article, we look at five concerns that may be affecting you as an investor and the possible solutions that can help.
Concern One: Market May Crash Soon
With the markets hitting historic highs, investors see possible corrections ahead with a major impact on their portfolios. As a result, many have stalled their equity investments or have opted for substantial redemption. A stock market correction is not a new phenomenon and historical trends indicate that stock markets gradually recover after a steep fall. Equity instruments help in beating inflation in the long term. It’s perfectly okay to be cautious when the market is risky, but at the same time, you should not lose any opportunity to earn a higher return. Instead of alienating yourself from the market, you may consider reducing your exposure to equities and wait till a healthy correction happens to resume investing again. You can avoid large lump sum investments when the markets are uncomfortably high and instead opt for systematic investment plans (SIPs).
Additionally, you should work on a well-balanced investment portfolio with your funds invested across asset classes so that your returns keep on growing irrespective of the market movement.
Concern Two: Am I Investing Enough For Retirement?
You must have formulated a retirement plan at the beginning of your career. With inflation and returns through some investments slowing down, you must be worried whether you are investing enough for retirement. While planning for retirement, keep in mind that you have to build a corpus that can last long. You can keep your concerns at bay by reviewing your investments regularly and aligning them as per your current situation and inflation rate.
You can work on an estimate after accounting in your current lifestyle, income that you can save, medical and general inflation rate and your regular expenses. While doing so, reduce the expenses that you will not need after you retire. For instance, your commutation expenses will reduce once you retire. The figure you will arrive at is the approximate figure that you would need to retire and align your investments in line with this.
Concern Three: Will Taxes Take Away My Returns?
Some people invest without thinking about tax implications. As a result, they may be disappointed with actual returns. For instance, if you are in the highest tax bracket of 30% and invest in a bank FD at 5% p.a., you will get a net return of only 3.5% p.a. Assuming the prevailing inflation rate to be 5% p.a., your real rate of return in this case would be negative 1.5%.
Before investing, you should check how much your tax obligation would be on the return you expect. If by mistake you have invested in an instrument that gives you a low return and a high tax rate, you may switch to an investment instrument that is more tax-efficient and offers you a higher return.
Concern Four: Am I Investing In The Right Instrument?
It’s good to start investing as soon as you start your career. It’s equally important to choose the right investment instrument that matches your risk appetite, return requirement, and helps you to achieve your financial goals. If you are concerned about your choice of instrument, you may take the help of a registered investment advisor to get your financial health assessed. It’s good for you to get your investment aligned in the right direction as early as possible in your career.
Concern Five: Will My Investment Be Able To Help During An Emergency?
Investing in instruments that offer high liquidity and the opportunity to earn a return on them can be useful during a financial emergency as well. Sometimes people emphasize more on the long-term financial goals and invest in instruments that offer low liquidity and are taxed higher if liquidated in the short term. During a financial emergency, they land up borrowing money instead of using their invested funds. You should first build your emergency fund by investing in an appropriate investment instrument and thereafter focus on investing for other financial goals. Ideally, you should maintain an emergency fund that should be sufficient to meet your regular expenses for around 6 to 12 months.
It is natural to be worried when your hard-earned money is at stake. The key lies in being calm and taking money decisions that have a positive impact on wealth creation.
(The writer is CEO, BankBazaar.com)