Investing in financial instruments is widely regarded as an advisable and profitable channel of income-generation. However, the risks of incurring large financial losses remain too, particularly if you are a newcomer in the financial market. In fact, prudent investment decisions need to be formed, so that profits can be enjoyed, over the long-run too. There are many professional business firms that offer investment services to individuals. Apart from taking help from these firms, individuals also should hire an expert financial planner. The latter would be able to provide knowledgeable and viable financial planning advice to clients. Such advice, if followed properly, can go a long way in securing the financial future of the investors.
Recommendations related to financial planning and investment services can be varied in their nature and quite large in quantity as well. Some of the very basic rules that need to be followed while forming investment decisions are:
a) A certain portion of income needs to be put away as savings on a monthly basis. A portion of all increments should also be saved. This helps people build a decent stock of wealth over time.
b) Investments that are deemed to be extremely risky should be avoided, at least when one starts out in investment.
c) While making investments, individuals need to diversify their portfolio. Ideally, not more than five per cent of one’s total invested amount should be in a single sector. This, guards against any potential drastic losses due to a severe downturn in a particular segment of the market.
d) The basics of borrowing from different sources, including banks, need to be thoroughly understood. In particular, one needs to know the difference between the quoted ‘nominal’ interest rate of banks on loan amounts, and the actual ‘effective’ interest rate that is charged.
e) The frequency of payment of your interest (monthly, quarterly or yearly) needs to be kept track of. If people do not have the time or knowledge to invest directly on shares and monitor the proceedings, they can invest on unit trust funds as well, and
f) The costs of the different investment products need to be considered. A detailed break-up of the different components of the total cost should be studied. Cost levels vary across investment instruments, and one should know if they are too expensive or not.
The above are some of the simplest financial investment advice, which a financial advisor might provide you with. These would help to a great extent in ensuring that the investment decisions you take are correct, profitable ones.