Whenever an investor talks about building his financial portfolio, financial experts and market experts always advise to keep the risk low. Investors, old or new, are confused about the best option to invest. This is because every investment option has a different risk return profile. In such a situation, diversification is an essential aspect of investment in the portfolio. Generally, financial advisors take into account the risk return profile of each asset class and the investor’s goals and ability to take risks. Based on the risk profile of the investor, financial advisors recommend an asset allocation strategy for the purpose of high returns at low risk. In such a situation, it is important to keep some important things in mind while making your financial portfolio, so that the investment goal can be achieved. Let’s know 5 important things….
Investing in domestic equity
Domestic equity is a financial asset by which we are generally aware. Because the information about the stock market index and the business and economic activities of the companies listed on them are available through the news publications. Investors usually choose direct equity to buy and sell shares in trading hours. Similarly, investments can also be made through mutual funds, which provide long-term returns. Investing through mutual funds is generally considered to be a safe bet as compared to a given straight equity it is believed that funds usually invest in a basket of 25-50 stocks which reduces risk. Also, the fund is managed by a professional fund manager.
Fixed income securities
For those investors who do not want to invest in high risk options, the fixed income option may prove to be better for them. Fixed interest rates ensure higher estimated returns than equity. Fixed income investors have many options for choosing government and corporate bonds, fixed deposits, fixed income mutual funds, etc. In the case of corporate bonds, secured bondholders are required to pay first when the company is bankrupted against other shareholders. Diversifying investments through government bonds can be beneficial and reliable, as they are guaranteed by the sovereign and by default the risk is almost negative.
Gold investment in uncertainty
As a safe asset class, gold has always attracted Indian investors. The old tradition of buying gold continues even today. Many families maintain the wealth of gold for generations. Interestingly, over time, investment options in precious metals have increased. Now we have the option to invest in gold, gold ETFs, gold coins, bars, etc. in electronic form through gold bonds. Gold ETFs are now being traded on digital payment gateways as well and they hold the same value of purity as the pure form of gold. Also, for starters you can trade less than one gram of gold. Gold acts as a safety against inflation and is considered an option in times of economic uncertainties like the global economic crisis or the current COVID-19 pandemic.
Investment in international equity
It is common knowledge that in the US there is an opportunity for diversification of indices like Nasdaq 100, NYSE, Dow Jones Industrial Average etc. At the same time Indians provide similar or better returns than indices. For example, if we compare the Dow Jones and the BSE Sensex in the period 2010 to 2020, the Dow Jones gave a return of 196%, while the BSE Sensex gave a return of 150% in the period. However, questions have been raised about the top stocks generally inaccessible to the average Indian investor. Fractional trading is also an option for retail investors in this situation, in which, an investor can own some part of a share. He can do this by investing $ 1 and more, with an upper limit of $ 250,000 set by the RBI.
Insurance is necessary for a safe future
Investing in insurance is one of the safest bets when it comes to managing financial portfolios. Any untoward incident or life-threatening health ailments can be safely dealt with, as insurance protects people from high medical expenses. In the context of tax too, investment in insurance can be a boon, because the profits from them are not taxed. Insurance or health insurance is helpful for both the individual and his family in the long run, as it is done for livelihood. In addition, many plans are offered by various insurance service providers, and monthly premiums are often cheaper for professionals working overtime.