You’ve heard the phrase “past performance is not a guarantee of future returns” so often that it has probably lost its meaning. But it’s a good reminder as you look ahead to next year’s money plans.
Most of us often get worried when it comes to investing money. Some people suggest to invest the money in shares, mutual funds, bonds, property or gold and silver. However, no one gives us the surety on returns, which is the most worrying part of investments.
Investors can plan for the next year without immediate worries about the “fiscal cliff” they were facing at the start of 2013.
Here are some points you can keep in mind while planning your investments for the year 2014.
1. Identify your risk tolerance:
First thing you need to do before planning for the investment is to define your risk tolerance level. How much risk you can take to invest money in any scheme or asset? Getting answer to this question will resolve your fund allocation to achieve your goal.
And, then effectively use the diversification of money investment. This will help you in achieving a variety of distinct risk/reward objectives and reducing overall portfolio risk. Don’t forget to reassess your risk tolerance periodically.
2. Assess your past investments:
Check your existing investment policy and the returns you are getting on the same. This will help you in indentifying the loop holes in your current planning. Also, you can check whether your current investments are appropriate as per your risk tolerance level.
If any modifications are required, then do not hesitate to do so. But do not forget considering your tax and costs in preparing the new portfolio.
3. Asset allocation:
Asset allocation means how much money you want to invest in mutual funds, shares, gold or property. Allocation of funds helps you controlling your risk tolerance as different asset classes react differently to changes in market conditions such as inflation, rising or falling interest rates or a market segment coming into or falling out of favour.
Go through the document of investment in detail to be assured of terms and conditions applicable on the investment. In the current scenario, mutual funds are considered as safe bet. However, you can take additional benefit by tax efficiency, professional fund management, variety and liquidity.
4. Don’t panic:
If your investments are not showing good returns then just do not leave in a hurry to secure your money. Study the market trends and review the performance of the other investing options in the market. Do remember that frequent changes in your asset allocation may not only expose you to unnecessary risk but could also make a serious dent in your chances of achieving investment success.
But it does not mean that you can sit and relax after investing. Your portfolio requires a check at regular intervals of a year to do not let your portfolio to drift from your defined level of risk tolerance.
5. Stay committed to your investments:
Maintain a disciplined approach in your investments. It is important to remain committed to your time horizon and continue the process irrespective of the state of the market. Therefore, don’t panic when you are faced with market downturns. Remember, by abandoning your disciplined approach, you forfeit your chances of benefiting from averaging the results.