Financial planning for the long term would be much easier if investors were armed with crystal balls. But since it’s impossible to gaze into the future, people must find their own ways to ensure that their investments are able to withstand what lies ahead. This can be easier said than done, since there are many variables in the long haul. However, difficult doesn’t translate to impossible, and a few simple steps can go a long way in making the journey ahead a smooth one.
Factor in the Future
Investing is most effective when it is done with a clear goal in mind. However, determining the exact amount you need in your retirement corpus can be futile if you don’t account for inflation. Fortunately, this is now easier than ever, owing to the sheer number of retirement calculators and the wealth of data that are available at the click of a button. And if the figure at the end of the exercise seems just a little unachievable and daunting, don’t forget to factor in the impact of compounding as well!
Use the Right Instruments
All the financial discipline in the world cannot make up for the wrong asset allocation. Factor in your risk appetite, the amount and nature of capital at your disposal, and your time horizon when selecting the investment avenue. Equity is generally regarded as the best asset class for the long term, so you might find it lucrative to invest in stocks or equity mutual funds. The latter comes with the added benefit of a fund manager’s expertise, making it ideal for retail investors that don’t have the time or know-how to constantly monitor their investments.
Invest in the Right Sectors
When investing in a business, there are a few things that you must definitely research, such as the company’s leadership and financial standing. However, even an efficient, well-run enterprise isn’t immune to macroeconomic factors. For long-term investment, select future-facing sectors that are poised to see growth in the years to come. At the same time, you should also avoid parking your money in sectors that you foresee facing a lot of pushback. For instance, if more and more drugs are being brought under the control regime, it might not make sense for you to invest in the pharma sector.
Insure Your Investment
The fact that insurance isn’t synonymous with investment cannot be stressed enough. However, insurance does more than just safeguard your health and loved ones – it also safeguards your hard-earned money in case of an emergency. In a scenario where you or a loved one take ill, healthcare expenditure could eat into your savings. And while this can seem like a distant possibility when you’re young and healthy, a 2014 report by the National Sample Survey Office found that 44 out of every 1,000 Indians end up getting hospitalised in a year. Protect your health and wealth by securing the appropriate insurance cover for your family.
Think Long Term
While this one might seem like a given, an alarming number of long-term investors are swayed by market movements and events that will have little to no significance in the long term. If, for instance, the investment is for your retirement corpus, which is 30 years away, it is unlikely that a little local political volatility this year will make a dent in your returns. This definitely doesn’t mean that you should disregard every bit of news, but that careful evaluation should drive any decision-making, as opposed to emotion.
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