There are different phases in ones career and life. To avoid pitfalls, it is important that a person makes changes to his investment pattern with time. This will depend on his financial status. You need to maintain a balance and remain diversified. Here are some tips which will help you gain substantial wealth by making right investments at the right time.
What is Wealth Cycle?
Wealth-cycle epitomizes the relationship of the flow of money and a persons life. It is a precise and simple way to look at your entire financial life and quickly figure out your position and make investment decisions.
Wealth-cycle presents a birds eye view of your investment priorities and how they will change over time. Thus, it helps you revise your investment portfolio and stay prepared to meet the future.
- First Part Accumulate Wealth
You need to have a proper plan about the investments that you are going to make at different points in your life. When you are still in your 20s, you have few responsibilities and liabilities. Thus, you can afford to take more risks. You can opt for risky options like shares, mutual funds etc. Even if you lose a little money, you have the time to make up for it.
You can also put in almost everything that you earn when you have fewer responsibilities in the 20s.
But as your commitments towards your family increase you will have to allot a major portion of your wealth towards your family responsibilities. Also, your risk-taking capacity might be a little less. You then need to turn towards more secure options like fixed deposits etc. You also need to look at schemes for your childs higher education, daughters marriage etc.
- Know Your Instruments
Whatever your goal, there are two types of investments you can select from 1. Self-Managed and 2. Investor-Managed
Investor managed investments may have lower expense ratios, like stocks, bonds and bank FDs, etc. However, they need a lot of effort from the investor for efficient management.
Thus, if you are hard-pressed for time, it is better to use self-managed options like mutual funds, ULIPs (Unit Linked Insurance Plans).
More than this, you need to know that every instrument has a different purpose. For example, if your goal is to convert your lump sum money into a regular income stream, your investment options include monthly income plans, annuity schemes, etc. But, if your goal is to grow your savings, you are better off using ULIP plans and mutual funds for the same.
- Switch the Investments
Your main aim is to make optimum use of your career to build wealth for your twilight years. During the peak of your career, you need to be highly aggressive and try to accumulate maximum wealth. As you near retirement you must select options which will help in the continuous growth of your assets.
- Start ASAP
Even if you find your financial graph not matching with your lifes graph, do not worry. As the Chinese proverb says, the best time to plant a tree was 20 years ago, and the second best is now, simply focus on starting the investments.
One of the main problems with people is that they wait for the right time. The fact is that the right time is now. Remember that wealth accumulation is directly proportional to the amount of time you give.
- Your portfolio
While opting for different investment options, you must ensure that along with balance and security you give importance to diversification as well. You must look at different options. Ideal investment plans are those who will give market linked returns as well as an insurance cover for the security of your loved ones.
The ULIP plan is one of the best examples of this type of investment. You have the option to invest in capital markets, and you also have the option to surrender or partially withdraw the ULIP. In case of death of the insured the insured amount or the fund value (whichever is more) is given to the nominee.
- Visit Again
It is not enough to make investments. You must also know what changes you need to make in these investments based on your current situation. For example, when you retire, you cannot opt for only risky options like equity.
Your investment options must change depending on the money you have. Every persons needs, risk taking capacity and life is different. So, you need to change investment patterns depending on the changes in your life.
Depending on your financial status and responsibilities and commitments during different phases of life you need to opt for investment options. It is also important that you do not get into unnecessary debts if you want to lead a secure life. Remember that it is important to be wealthy rather than look wealthy.