You will have different financial goals during your lifetime. These goals are segregated as short, medium, and long-term. Generally, short-term goals are those, which are due within two years. Medium term financial goals must be met within two to five years. All financial objectives beyond this period are classified as long-term goals.
Irrespective of your life stage, you may easily achieve your financial objectives through meticulous planning and following sound investment strategies. The investments depend on age, current financial situation, and your risk appetite.
The purpose of the financial objectives determines your choice of investment product. If you are retired without any financial commitments and have some spare savings, you may choose to invest in schemes that offer an assured monthly income.
Some of the most common safe investment avenues include fixed deposits (FDs) and government securities. On the other end of the spectrum are risky products such as equities, company debentures, and commodities. If you are completely risk-averse, investing in government securities is the safest option irrespective of the duration of your financial goal. However, the returns on such investments are not very high and often inadequate to meet the rate of inflation. Nonetheless, if you choose to invest in government securities, it is recommended you invest a large capital and start early in your career.
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Let us now study what types of investment avenues are appropriate to meet various financial objectives.
- Short-term goals
When you invest in debt instruments, you are unable to achieve capital growth. You may be able to grow your capital if you re-invest the interest, which gives it the power of compounding. However, you need to remember that interest investment will be at a lower rate because of the declining market conditions, which reduces your return on investment (ROI). Nonetheless, investing in debt instruments to meet short-term goals is recommended because even if you are willing to assume higher risks by investing in other options like stocks, it may result in capital erosion in the short-term.
- Medium term goals
Planning for medium term goals comprises combination of secured and high-risk financial instruments. The high-risk products provide the advantage of capital growth. On the other hand, safer financial instruments ensure periodic income. Opting for a balanced mutual fund scheme is a good option to invest and meet your medium term financial goals.
- Long-term goals
The most appropriate way to meet long-term goals is to invest in high-rated company bonds and equities. A small component of your overall investments may be in safer debt products. Additionally, public provident fund (PPF) and national pension system (NPS) are other available products to meet long-term financial objectives.
Stock investing to earn high long-term returns
Since the Sensex first came into existence in 1979, the market has not seen a single 15-year period when the ROI was negative. For a seven-year period, there have been only three times when the market was in the red. If you consider 10-year period, there is only one time when the equity market delivered a negative ROI.
When you look at the historical performance of the Sensex over a longer period of ten to fifteen years, here are five important deductions.
- When you invest for long-term, the possibility of losses reduce
- Sensex outperforms the rate of inflation
- Investing in the long-term delivers excellent returns
- As investment horizon increases, the volatility and range of ROI reduces
- If you choose to invest in blue-chip companies, you are able to earn higher ROIs
Now that you understand that stock investing is a profitable option, here is how you may invest in equities. The first step is to open a demat account online and a trading account with a reliable broker. The trading account is used to buy and sell shares on the stock exchange. Similar to a regular bank savings account, a demat account is used to electronically hold your investments at a single location. When you make a purchase, the shares are credited to this account and when you sell the shares, the number is debited from your account.
When you invest in equities, you have several benefits. Firstly, you may earn periodic returns through dividends, rights, and bonus issues. Furthermore, as the prices of the shares increase, you enjoy capital growth.
If you want to start earning high ROIs in the stock market, complete the online demat account opening formalities today and start investing.