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6 Steps for a Successful Investment Strategy

Investment is the key to prosperity during your earning age and after retirement. If it is performed step by step, systematically and logically, it gives you financial freedom early in your life. Many people understand the concept of saving and investment, but now it is the time of smart investment. Earlier, only metro cities had easily accessible avenues of investment like FD, Mutual funds, stock and insurance. But now due to the widespread availability of the internet and smartphones, everyone can plan the investment irrespective of the location of the country.

So, you can devise a feasible and effective investment strategy which is capable of fulfilling your cash needs, and can maintain a regular cash flow post retirement. The best way to start with planning an effective investment strategy is by following the below shared steps.

  1. Get clarity on your needs and find out the amount which would be enough to manage your expenses post-retirement. Make a post-retirement monthly budget to get an idea of how much you would be needing. You can take help from your parents to get a better view of what your post-retirement expenses can be.
  2. Define the degree of risk you should take while investing to achieve the desired result. For instance, if you are in your 20s and have just started your job, you can take risks without putting your survival at stake. The same might not be possible for you to do once you get married and shoulder on responsibilities.
  3. Find the inflation rate that prevailed in the past and compare it with present trends. Based on the observation, find out what could be the inflation rate in the future so you can plan your post-retirement budget properly.
  4. Add a buffer amount to save your investment strategy from failing in case your inflation rate predictions turns out incorrect.
  5. Clubbing everything together, find out how much you would need and what should be your annual investment budget to achieve the desired maturity amount. For instance, if your post-retirement target is 50 lacs and you are around 40 years of age; you have to invest approximately 2 lakhs every year. If you invest less, you might not be able to achieve that target and vice versa.

Once you are done with all the above mentioned steps, you can follow the below mentioned tips to make a robust investment strategy that would guarantee you the maturity amount you expect.

Step 1 : Prepare for Emergency

The emergency can come in anyone’s life irrespective of age, location or profession. While we can not fully control the emergency, we can be financially prepared to handle it. It is advisable to create the emergency corpus right from your first earnings. The best way to do it is to invest your money in Fixed Deposit. The benefits of fixed deposits are not unknown to anyone. It provides the safety of your hard earned money, reasonable interest rates and easy access to the fund in an emergency. Based on the duration of the FD, you can avail loan against FD or break the FD to avail emergency funds for unexpected situations. To avail ‘bank-like safety’ and ‘better than bank’ return on your FD, you can consider investing in FD of reputed companies like Bajaj Finance. The company’s FD is AAA rated by independent rating agencies like CRISIL and ICRA.

Step 2 : Open PPF Account

If you are in your thirties or early forties, it is recommended to open the PPF(Public Provident Fund) account. Every month you can deposit a small amount from your earnings. After 15 years, when you are near to your retirement, you will have sizable corpus for your retirement life. The interest rate is in line with FD, but liquidity is limited in the initial years of investment. Hence, you must have a separate emergency fund to avail enough liquidity.

Step 3 : Start Mutual Fund SIP

In your young age, you can take higher risks of equity. In the long run, equity can give you a better return than any other financial instrument. The only condition is the ability to wait and hold your investment until the long run. In the short run, the value of your investment can fluctuate with high volatility. For example, political changes due to the outcome of the election can make or break your portfolio if you invest now.  If you encase your investment in one or two years, you may also lose your money by negative returns.

Step 4 : Grow Your Portfolio by Additional Investment

Whenever you have access money, create the habit of investing in good instruments like Fixed Deposit. For example, your yearly bonus, incentives, gifts from parents on special occasions can be wisely utilized for your future. The power of compounding has an unbelievable effect after a few years. You can use the FD interest calculator to know the future value of your investment by entering principal amount, FD rates and years of investment. As far as possible, it is advisable to invest in cumulative FD to let your investment grow exponentially.

Step 5 : Avail Medical Insurance

It is wiser to avail medical insurance for yourself and your family. In the case of hospitalization, you may need a large fund for the treatment of critical illness or accidental injuries. In the absence of medical insurance, you have to access your regular savings, that can ruin your long term investment goals. The medical insurance of proper amount saves you from such immediate outgo of the funds. In addition, it enables you quick and quality treatment in the need of the hour.

Step 6 : Avail Term Insurance

It is well said that “Man Proposes and God Disposes.” Irrespective of our hard work and planning, anyone can meet to unfortunate death or permanent disability. While we cannot stop such incidences, we can give some financial protections to our near and dears in our absence. The term insurance gives the lump sum amount to your nominee in case of an unfortunate event. Ideally, it is recommended to avail the term insurance equivalent to your ten years’ income.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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