10 Effective Ways To Manage And Grow Your Wealth
If you have managed to save some dough post your expenses, you should think of investing the surplus in a prudent manner. It is your hard-earned money, so you definitely do not want it to fade away.
Hence, you also need to grow your investments for wealth accumulation and to eventually reach your financial goals. Today, we will tell you 10 effective ways which will guide you through how to manage and grow your investments.
- How much to invest?
Calculate your investment potential in risk based instruments based on your age. This is the primary rule that will help you start-off with your investment portfolio.
You must invest the resulting percentage in stocks that derives from subtracting your age from 100.
So, for example, if you are 25 years old, you should invest 75% (100-25) of your savings (targeted for investments) in shares, and the rest 25% in bonds.
- Spread your money in other investment categories
Now, out of the 75% of your stock portfolio, venture 10-25% of it in international bonds. The idea here is that the younger you are and the more savings you have, the higher your investment percentage should be.
If you are affluent (HNI) with a liquid networth over $1 million, you have limited investing options in India, and the fact that Indian asset markets are quite volatile, gives you a good reason to invest in International Securities.
- Allocation in Real Estate Investment Trusts (REITs)
Apportion another 10% of your investments to real estate investment trusts. However, this would not be additional 10% from your savings.
This percentage should come from your stock and bond portfolio alike. You can take 5% off from each of the portfolio and reinvest this into the REITs which would provide maximum returns in form of dividends.
But since, these are amalgamated investment instruments it will lead to average returns, same as stocks.
- Diversify your investments
It is good to invest in risk based investments tools for speedy growth, but in adverse market conditions it may backfire.
Hence, it is rather wise to diversify your investments in asset classes and debt instruments alike.
While Fixed Deposits, bonds, or MIS schemes in Post Office can provide you lower, but safe and consistent returns.
Mutual funds or shares on the other hand can be risky, but if hits the right market chord may give you substantial returns over the period.
- Why Mutual Funds?
If you are not someone who has enough cash to invest in shares staying away from trading in individual stocks is a better idea as you keep incurring the trading fees every time you buy a share.
In such cases, investing in mutual funds will not only take care of your investment needs with balanced approach, but will also be lighter for your pocket.
Opt for Index funds that purchase all stocks from a particular index of big company stocks, such as S&P 500 index. You can also explore other index options like, real estate index funds, bond index funds, money market funds, and more.
- Consider Exchange Traded Fund Investing(ETF)
If you are an average investor with limited funds, ETFs can be your best bet. These instruments allow diversification of your portfolio.
The best alignment in this case will be to invest 50% of your equity selection in a market index ETF, and the rest of the 50% into separate bonds/securities.
Therefore, higher your investment portfolio is into the ETF (core holding), the higher it will reap from the market performance.
- Balance your risk and returns portfolio
It’s a simple algorithm, the lesser the risk, the lesser the return. Hence, even though diversifying your investments lowers your risk exposure, it also reduces your average annual returns.
So, the younger you are, allow more of your investments to go into risk classes because this is the time you can afford risk exposure with maximum returns.
But when you are close to your retirement, keep reducing the risk exposure. Close to your golden years, say when you are 50 take off your age from 110 and invest that amount in risk portfolio (110-50) that is 60%.
- Save Tax
Most of your return your investments are taxable, hence either consider lowering your taxes on these investments, or invest in tools that do not attract tax:
- National Savings Certificates (NSCs), ISAs, Pensions can help you earn tax free returns.
- Gift your additional income to your children who fall in the major category. Interest earned shall be exempted from tax upto the basic exemption limit.
- Create a trust under the name of your minor child, and the amount should not be spent till he/ she is a major.
- Claiming allowance for paying up stamp duty and registration fees for buying a house in the same year you purchased is another way to save tax.
- Show your capital losses while filing for income tax returns.
- Purchase a house in joint ownership to reap maximum tax benefit.
- Claim the premium paid for child health insurance as an income deduction.
- Plan your investments based on Lifestyle
If you are young, unmarried and working you can buy a house on loan, rather than renting.
This will help you not only to avail the tax exemption, but also save you the rent amount.
But, if you are married with two kids, and own a house already, you can then invest in SIPs or recurring deposits for short term goals, and to fulfill long term goals NSCs and Life Insurance policies can be the safest bets.
- Contact an Expert
Leave it to experts when in doubt about how and where to invest your hard-earned money.
You can contact a financial consultant from any of the leading banks or other institutions and they will guide you through the best in your journey to manage and grow your investments!
Disclaimer: This article is for information purpose only and does not constitute any advice or expert opinion. Please use your discretion while investing and consult an expert if required.