Investment is an act, where we put money on work to help us achieve financial targets.
For me, investment is a task where my saved money is further made to work to generate more money.
Investment should be done systematically with a goal. Just because you have extra cash does not mean you should invest it.
Each investment has its own risk. You should evaluate different risks associated with each investment option before investing.
I will talk about different risks associated with each investment option in later part of this book.
Each investment should be done with a goal; your investment should solve a purpose.
Normally an investment is made with following goals:
Goal based investment is best method to put your money on work. Life is full of uncertain, you work for yourself or your family, you never know what bad can happen at any point of time.
Investing with a purpose helps you to be ready for any situation and you have to struggle less at the time of financial crises.
Financial security is your readiness to any financial.
What if you lose your job to robots after 5 years? How will you cover your job gap period?
This is an example of financial crises, which you may face. Investing your money will help you to sustain your job gap period.
Here I will take my case, I have listed the different categories under Financial Security goal. These are the basic needs of everyone; one cannot avoid these day-to-day needs.
Health is Wealth.
If all of a sudden you or anyone from family have a heart attack, are you ready for this sudden shock?
Mentally you may not be ready, but you should always have the monetary readiness to face health related issues.
I already discussed it above, are your financially prepared for job-gap. If you are replaced or lay off happens in your company, can you take care of your expenses between the time you get another job?
You should plan and invest accordingly to take care of your monthly expenses to run your home and necessities of everyone.
Owning a house is a dream, everyone have. You investment strategy should help you to achieve this dream.
Your financial planning for child education should be full proof. After all your child is your best investment.
These are long term planning but your investment option should not let your down.
In India, marrying your child is a big thing. In fact it is one of the most expensive thing.
Once you retire, though income from your salary will stop but not expenses. Your retirement funds consisting of your long-term investment should generate returns to meet your expenses through out the remaining life.
Death is the biggest risk. Untimely death is risk that can spoil all your planning and life of your family.
To be honest, most of the money that we earn is with aim to provide good life to family and children.
What if you are the only earning member and meet with an accident?
What your family will do, will they be totally bankrupted or you have invested to take care of them even if you are no longer with them.
Financial security should be your top priority, second comes the wealth maximization.
If you have invested 1 lakh today and even after 5 years, your investment value remains 5 lakh, you failed to identify correct investment option to grow your capital.
Capital Growth means appreciation in your investment value.
To put it simple, Higher the rate of return, more wealth is created.
Investments can help you save your taxes.
Tax minimization should not be your main reason for investment; you should also evaluate investment option with returns, and growth.
This article is first in Investment Series Book.