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How do we select and protect our investments?

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Proper investment planning protects the investor from risk of loss. Investment planning is extremely critical in the current economic scenario considering the volatile movements happening in all economic sectors. The investor should identify his goals, asses his maximum risk tolerance, know the impact of taxes and be aware of other factors such as fiscal policy, interest rates, marketability of the investments etc on selection of specific portfolio. Investment planning focuses on identifying the best investment strategy whereby the investor’s financial targets can be accomplished. Normally his selection of portfolio depends on the following criteria:

  1. Risk attitude
  2. Fund availability/Cash flow needs
  3. Time frame
  4. Expected returns
  5. Wealth management policies
  6. Liquidity of the asset
  7. Tax implications and government policies
  8. Market sensitivity and trends

The investment vehicles can be of varying nature from conservative risk type to moderate and aggressive risk categories. The right investment decisions shall be made after careful study on the overall economy, industry conditions, and the financial condition & management of the company. One can depend on resources such as library, public television, internet, shareholder reports, business publications, magazines, industry analysts, government data, brokerage houses etc as sources of information for investing.

While you are selecting your portfolio there are several factors which you need to consider. Investments are all about executing your strategy and going ahead to the next levels of target. Hence the most important matter is your long term vision, rather where you want to see yourself in another say, ten years or fifteen years. According to your long term plans you need to identify short term goals whereby you achieve the planned long term vision in a systematic manner.

Choosing the appropriate investment vehicle is another important factor in the investment planning. The selected vehicle can be shares, real estate market, gold and precious metals, currency, bonds. Each area of investment can have advanced techniques which supports the ideas of the investor. For instance, in case of shares, bonds and currency trade, the investor can go for investment in ‘futures and options’ which act as a relatively advanced method in risk hedging.

Managing your risks

Having adequate knowledge is a must for making informed decisions. Investment without knowledge is an extremely risky affair. A good investor must be aware of all kinds of potential risk which may affect his decisions so that he can protect his investments in the best possible way. Better knowledge about the investment leads to accurate planning and leads to increased return on investment. Achieving the expected return on investment is the dream target for any investor.

The investor need to be precisely clear about his vision and his risk bearing capability. This will enable him to shift or shuffle his portfolio any time to balance his expected ROI and the chances of loss. For instance, an aggressive investor may decide to shift his portfolio policy to a moderate one, in times of highly volatile market trends. This is normally done with transfer of a fixed percentage of his investments to a low risk category investment. It can be done in reverse case too.

In many cases the investment decision is affected by the age of the investor and the funds available. But its not true to say that investment planning is applicable only for people with large amount of funds available. Even small amount of fund available can be invested in a systematic manner. The key point is the long term targets of the investor. All such investments made must be periodically assessed for its value so that a proper decision can be made on an investor’s future decisions.

Selecting an investment advisor

The best decisions are taken with the knowledge of all underlying risks. Eliminating complete risk is not possible in any given investment strategy, but at the same time a known risk can be spread to other factors by selection of a proper combination or mix of investment. This reduces the investor’s chances of losses by a considerable extend. It’s a fact that every one is not professionally educated and exposed to handle the investment plans. There comes the need of a professional investment advisor who can guide you to decide in the right way, according to your ideas with the most minimum risk of loss. A well-set investment plan yields expected returns. The investment advisors are exposed to various market situations and are well versed with the techniques to avoid or minimize risks.

While selecting an investment advisor, the following matters need to be considered:

  • Detailed discussion to with your advisor to ensure that he is compatible with your plans and ideas.
  • The advisor should be well aware of your goals and risk tolerance.
  • Personal meetings are advisable rather than telephonic discussions and net based communications.
  • The track of the investment advisor shall be reviewed.
  • Obtain references and take opinion from selected investors.

Once a proper selection of investment is made, the next step is to take all efforts to protect the value of your investment. An investment manager or advisor is the best option available to protect value of investments. In most of the cases, the benefits that will come to you will be far higher than the cost of his professional fee. Also, you will be able to use the best brains in the industry with a very nominal cost, fetching the best out of your investments.

– By Ranganathan R.

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