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There is no short-cut: Long-term investment is only way to grow your wealth


Investing is essential to achieve your goals. It is the only way to make your future better. For that you need to grow your money, which means you need to earn returns on your money that you invest to tackle inflation. Kanika Agarrwal, co-founder Upside AI said one should look behind traditional investments and focus more on investing capital in long-term savings.

Kanika said that traditional investments most households use are some form of debt – FDs, savings account, PPF, etc. Indians use these instruments disproportionately to save. 

Investing only works in the long term

However, long term the best chance you have of generating real returns, i.e. beating inflation is using equity in your portfolio. 

She further said that the way to also look at equity has to be as a long term investment instrument. Think of it like investing in real estate. 

Rohit Beri, Chief Investment Officer, True Beacon, wealth management firm for UHNI and HNI’s said unless you are a professional trader, stay away from short-term investments. Investing only works in the long term – luck may help you in the short-term but will eventually run out. SIPs are great tools to bring discipline as well as automatic time-diversification. Before investing in alternatives (either direct or via AIF), spend time understanding the asset class – Alternatives can be too risky or too safe for your needs. Again, compounding is your best friend.

“With real estate, we are willing to hold for 10 years, completely unfazed by price corrections and lack of liquidity. However, because stocks give you a report card every day, they are held to a different standard. As it is much easier to get liquidity out of your stock investments (vs. real estate or even PPF), we mistake this convenience with a license to get out in the short term,” said Kanika

Therefore, invest that portion of your capital in stocks, MFs, ETFs, PMS that you intend to hold long term, and you have a great chance of generating inflation beating returns from the portfolio.

There are numerous investment options to choose from. You have to assess your requirements and risk profile before deciding to invest in any particular investment option

According to Kanika, your short term needs should be invested in a liquid fund/ FD and not in small cap stocks. Similarly, saving for retirement should include investments in MFs and PMS.

The other important factor while building your portfolio is “risk tolerance.” There are two types of risk tolerance – financial and mental. If you are close to retirement, your financial risk taking ability may be lower. Similarly, even if you are in your 20s and can take more risk, you may be get very stressed by market movements so your mental tolerance may be low.

How to build a diverse portfolio?

Spread your investment across equities, fixed income, real estate and preferably gold. It’s easier, cheaper and tax efficient to invest in fund/mutual funds than DIY. Also look at alternatives like VC, PE & Hedge Funds if your risk appetite permits it, said Rohit Beri.

According to Kanika, in general, you should look to build a diversified portfolio of ETFs, MF/ PMS, international equities, liquid funds, PPF, real estate/ REITs and gold (ETFs or sovereign gold bonds). 

How much you hold of each depends on your particular situation and a financial advisor can always help you plan your goals.

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint.





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