How can you turn your savings into wealth?

We belong to a conservative culture where saving habits are built into our DNA. As a country, we prefer to save rather than spend, unlike developed economies, which are driven by the spending-driven demand of their domestic economy. Saving is a matter of course for us and each of us saves for the future in our own way. Whether it’s putting our savings into a bank’s FD or contributing to a PPF or reducing the expenses of managing a home loan EMI, we’re just saving. But what about grow your money something beyond savings that gives you an 8%-9% return at best, half of which is somehow eaten up by inflation?

That’s if Saving and investing come together to help you build wealth and have a sense of financial security. A job is not enough to make you feel financially secure, because what’s left of your salary after paying off all monthly expenses is not enough to pay for future lump sum expenses that will accrue over time. Salary and salary savings cannot cover the big things in life like higher education for children, their marriages, health care expenses in old age, and expenses for the long period of your life in retirement when salary would no longer cushion you. It is imperative to invest your savings in investment opportunities where they can grow manyfold over the long term.

You need to understand the difference between short-term and long-term investment decisions so you can take a holistic approach to building financial security and wealth.

  1. Safe short-term goals
  2. Short-term goals are usually defined as milestones that you want to achieve in the next 1-3 years. If there are some short-term goals you can’t miss, opt for savings options like Bank FD, or better yet, invest in appropriate debt funds if you’re familiar with mutual funds. Bond funds, or debt funds, are safer than stock-oriented mutual funds and have the potential to offer you a higher return than bank FDs. But you have to do a good research or enlist the help of one Investment Advisor to select the right funds that align well with your financial goals and risk appetite.

  3. Don’t leave your money lying around in the bank
  4. Most people just leave their money in their savings account, even if the amount is significantly more than it takes to meet daily expenses. Don’t leave excess cash in a savings account. Rather invest it in a liquid mutual fund this can potentially offer you a higher return than the bank would offer you. Liquid funds are convenient to use as they have no entry and exit charges and you have redemption money available the next business day if you wish to sell your interest in the fund. Liquid funds are best for investing excess cash for periods of 1 to 90 days and are the least volatile of all mutual funds.

  5. Invest in balanced mutual funds for medium-term goals
  6. If there are some requirements that you expect to be due in the next 3-5 years, choosing a mixed mutual fund or a suitable hybrid mutual fund could be a good option. Balanced funds, which are a kind hybrid investment fund Invest in a mix of stocks and debt. They capture the characteristics of both stock and bond funds, offering investors a moderate risk/reward trade-off suitable for those who prefer to play it safe while looking for some stock upside.

  7. Invest in stock-based options for the long term
  8. When a financial goal If there is still a long way to go, let’s say your retirement life starts in 15 years or your daughter’s college education due in 7 years would be the best option to go for a well diversified equity fund. Equity funds are best suited long-term investments beyond 5 years as equities are subject to higher volatility in the short term but can generate good returns over the long term. Invest wisely in some stock funds that suit your personality, ie your risk tolerance. You can also invest directly in stocks, but mutual funds are better suited for those who don’t want to take the risk of stocks. Always try to understand everything Mutual fund risk before investing in them.

  9. Be flexible, monitor and rebalance your portfolio regularly
  10. Once you have your money invested in various mutual funds, FDs, stocks, ULIPs, PPFs, etc., the job is half done. You need to monitor your portfolio regularly and make changes as needed. A realignment is required to reflect changes in your life circumstances. For example, you change jobs from an MNC to a start-up, where the risks are higher. In such a situation, your portfolio exposure to equities should be reduced since your human capital is now invested in a risky stock. Working for startups is as good as owning risky equity.

  11. Get professional advice
  12. It is best to seek professional advice from an investment advisor or take advantage of their help Mutual fund distributors to complete the paperwork and requirements of the transactions. That Investment Advisor will create your risk profile and perform a suitability analysis before recommending any investment plan. It may be worth enlisting such help if you’re putting your hard-earned money into a long-term plan. Take the time to understand