By aligning your investments to the goal horizon, it will make sure that the level of risk is appropriate without being too high.
Setting a time frame for goals will help them decide how much investment risk they can take for better returns.
Couple of young architects who have been saving for various goals for the past few years. However, they have ended up parking all their money in bank deposits because they could not decide how much of risk they were willing to take in their investment.
While the idea of losing money makes one uncomfortable, one should know that they will have to take some risk to generate better returns. They want to know if transferring some money to an investment with high return potential will help them meet their financial goals quickly. They are not sure if there is a simple way to identify the risk they can take in their investments.
We are here to help you in simplest way to identify the risk.Contact us: mega@megafina.in
Architects are willingness to take some risks will help them identify investment instruments suitable for their goals and plans. The first thing they need to do is to segregate their goals clearly as each will need investments with different risk, return and liquidity features. Segregating the goals according to the time left to achieve them way is a good way to start. Some of their goals may be short-term, such as a holiday. Other goals such as plans to accumulate funds for the down payment of a home have a medium time frame while retirement goals are typically long-term.
Setting a time frame for goals will help them decide how much investment risk they can take for better returns. This is because some investments may give high returns but the returns may be volatile over the short term. Such investments require a sufficiently long investment time frame in which the volatility will smooth out.
One may be tempted to assign high return investments for their short-term goals if they have fallen behind in terms of the goal amount. But the risk in doing that is they may find that the value of the investments has dropped when they need the money.
While selecting investments based on the time horizon of their goals,One must remember that a longer investment horizon alone does not make a fundamentally bad investment less risky. They must invest only in sound instruments after evaluating their strengths and features. By aligning their investments to the goal horizon, they will make sure that the level of risk is appropriate without being too high. They can put their savings at risk to earn good returns without putting their goals at risk from inadequate funds
Contact us: mega@megafina.in for all type of investment guidance to fulfill your dreams.
Courtesy:Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta article in Mint on 6th May,2019