Most experts believe that the key to financial planning is diversification based on your risk profile as well as the duration you want to remain invested for.
Diversification is one of the most important techniques in financial planning and investment. It is basically not putting all your eggs in one basket and hence aims to maximise return by investing in different areas that are likely to react differently to various market and economic changes. There are a number of different financial instruments available for investing like stock markets, mutual funds, bonds, gold, real estate, etc., and a diversified portfolio neatly divides your assets into more than one asset class in order to reduce risk and maximise profits.
Although it does not guarantee against loss, it is the most well-sorted way of reaching long-term financial goals while minimising risk.
To plan the upcoming year effectively, market experts list different techniques like rebalancing portfolios to keep track of long and short-term goals, risk calibration, asset allocation, understanding of the financial developments throughout the year, and improving financial understanding, among others.
Here’s what experts say:
Kavitha Subramanian, Co-founder of Upstox
As you embark on a new year, it is crucial to engage in comprehensive financial planning to ensure a secure and prosperous future. Firstly, be aware of the financial calendar and understand key dates for taxes, investments, and financial reviews. This will help you sync your financial planning as the year passes by.
Next, while planning, keep track of both short-term and long-term goals. Whether saving for a vacation or retirement, a disciplined and balanced approach ensures continuous progress. Diversification is paramount; never keep your financial assets in a single basket. Spread investments across various instruments to mitigate risk.
Moreover, adopt a focused investing approach through Systematic Investment Plans (SIP). Regular and systematic investments, regardless of market fluctuations, are key to wealth accumulation.
Financial education and awareness lie at the core of a successful financial journey. The right learning material can offer valuable insights into making informed investment decisions.
Neeraj Chadawar, Head – Fundamental and Quantitative Research, Axis Securities
Asset allocation is a crucial step in managing personal finances. Volatility is an underlying risk associated with the individual asset class. 2023 saw a highly volatile time, with many ups and downs in asset prices amid uncertainty that grew due to Hawkish FED, rising bond yields and rising geopolitical tension. With proper risk calibration, one can sail through these volatile times smoothly with the right savings diversification into various asset classes.
The risk calibration process can start with setting goals followed by the right mix of asset classes to achieve that goal based on the risk profile of the investors. We believe a disciplined approach and patience are the two important pillars for the long-term wealth creation. With a disciplined approach, one can sail through the short-term volatility to achieve long-term goals.
Anshul Arzare, MD and CEO, Yes Securities
Financial planning is a continuous and disciplined process and is agnostic to a particular FY. At the brink of a new year prioritise your financial well-being by revisiting your cash flows. Analyse income, fixed expenses, and discretionary spending. It’s always prudent to trim unnecessary expenses while maintaining your quality of life. Always focus also on building or replenishing your emergency fund in line with inflationary trends and changing lifestyles. Review and adjust your investment portfolio to align with your goals and risk tolerance. Maximise contributions to tax-advantaged accounts. Tackle high-interest debts and reassess insurance coverage for health, life, and property. Regularly monitor and adjust to ensure a prosperous 2024. As mentioned, this is a very continuous process and needs no specific FY to focus on.
Trivesh D, COO, Tradejini
Let’s take the example of a 25-30-year-old working professional. The first thing they need to do is have an objective plan. Divide your objectives into short-, medium-, and long-term goals. Don’t aim for millionaire status by next month. Start small and specific. Small wins will definitely keep you motivated.
Also, hold your horses on buying individual stocks unless you research enough about the companies. Remember, you invest in a business, not in a stock. The smartest way is to start investing in mutual funds. Mutual funds are your friendly guide. Be disciplined while investing in mutual funds for the long term. Ideally, you should increase your investment by 10% every year. And over the years, see your money grow calmly while you get used to the market’s ups and downs.
Once you have the basics sorted out, you need to make a tax plan at the beginning of the year. The earlier you plan, the easier it becomes to organise it accordingly.
Where can a common man invest?
Not only in 2024 but every year when you review your portfolio, it’s important to assess your financial situation. As a normal salaried person with ambitions to invest, creating a portfolio can seem daunting, but it needs some research and planning. The best way to keep your money balanced is with SIPs, mixed stocks, mutual funds, and bonds.
Significantly, one investment that should be prioritised in your life is insurance and health coverage. They are like superheroes, protecting your family.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision
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Published: 26 Dec 2023, 03:08 PM IST