The moment you read a success story on paper about how somebody has earned millions of rupees by investing in stocks, you feel goosebumps in the tummy as you have discovered the roadmap to becoming rich overnight. It is great to have such zeal and vigour to invest in stocks, but there has to have clarity on your personal financial goals for becoming a millionaire through stock investment.
The first step in designing an investment strategy is to set your personalized financial goals for yourself. Once there is clarity about what your short-term as well as long-term goals, are then it is not at all difficult to identify the financial products in which you would want to invest. The irony of the stock market is that most investors are not aware of why at all they are investing and when do they need this money. And, such people amount to almost 99.99% of investors, which means that only 0.1% are investing in stocks after knowing what they expect in return.
Owing to this information parity, most investors (99.99%) are not able to gain the maximum profits out of the investment. People choose to invest in stocks only to gain some benefits from the money lying idle in their bank accounts. Others spend to save tax on the investments made and to earn more interest on the savings than on FDs. Since they don’t invest looking at the potential of stock investment, so they get left behind in the race of stock market investment. Such investors are always dependent on the stock advisories and often fall prey to advisors who bring them lucrative deals.
How to figure out your financial goals?
There are three types of goals which could be classified as personal goals, financial goals, and professional goals. Financial goals are the goals that require money to accomplish them. Personal goals are related to your own personal life, such as finding a suitable life partner, planning your family, choosing the place to settle down, etc. Your health goals also fall under personal goals. Professional goals could be to become the manager of your firm, to learn a new skill, to raise your confidence at work, etc.
But whether it is a personal goal or a professional goal, if it needs money to accomplish it, then it can be called a financial goal. Financial goals are often built upon the NEEDS of a person and not on the WANTS of a person. For example, kids education, medical insurance, having a house are NEEDS that is a necessity for surviving comfortably. But, dreaming of having a big mansion, chauffeur driven cars, plenty of holidays in a year, etc. are wants that you can do away with. So, remember that your wants can be unlimited but your needs are always limited, and your goals are always prioritized around these basic needs.
Approaching investment step by step
Take inflation into consideration: Once you know what exactly your financial goals are then the next step is to take a realistic approach to achieve these goals. Look at the current value of inflation rate that is prevailing in the market and understand how much it is expected to be in the next five or ten years. Adjust this expected inflation with your expected earnings 5 or 10 years hence. This helps you to give an accurate picture of the returns that you will be gaining from your investments.
Tenure of investment: The next step to frame the right stock investment strategy is to find the investment tenure you are looking at. Are you somebody new to stock investment and would want to stay invested for 5 years or you already have some faith and would want to invest for a good 10 year. Of course, you may invest for a shorter or longer period of time depending on your preferences and comfort.
Choosing the asset classes: For an investment tenure of fewer than 5 years, you must look at investing in securing funds such as debts, RDs, FD’s, etc. As the tenure of investment increases so does risk taking potential increases.
Returns Expected: The next big step is to decide upon the returns that you are expecting to come your way from your investments. For equity investment, an average return of 10 to 12% is expected, and for debt investment, an average return of 7% is expected. Based on your expectations, you can work upon the right ratio of equities and debts in your portfolio.
What is the kind of investment you are willing to do?
There are two ways in which you can invest in stocks. One is by opting for a systematic investment plan where you invest a certain share of the money by the end of every month, and the other is that you add on a certain fixed percentage of investment every year to reach for your goals.
Once you have sorted each of these steps, then you are ready to choose the product/stocks/equities for your investment. Once you have chosen the products and invested in it, then all you need to do is to review your investment plan regularly so that you can modify the plan as per the returns you are getting.
Thus, the moral of the story is that it is you who need to choose the right products that match your financial goals. Any product which matched your goals are suitable for you, but the case might not be the same for another investor. So, explore this wonderful world of stock investment only with your personal and financial goals in hand.
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