Smartest investment and life plans in UAE

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Top Factors to Keep in Mind before Buying Investment Plans

By PolicyBazaar

Invest smart today for a better tomorrow

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Everyone has some budgeting goals, for instance, your goal can be to save some extra funds every month saved after spending towards your expenses. You can be collecting such excess funds in a savings account so that you can later spend it to make a big purchase.

However, a savings account may just be earning you interest along with keeping your funds safe for the big purchase. A savings account is a good option to secure your funds if you are saving towards a short term goal.

Investing is making your money grow at a faster rate than a regular savings account. Although there is a high risk involved in investing, the potential return is also higher. In order to meet the goals that you have planned for the long term, it is important to store your funds in arenas that have the potential to grow rather than a standard savings account.

There is a wide array of investment plans available in the market. You can evaluate these options for your investment plans with respect to factors such as your age, risk appetite, and financial goals. This helps in ensuring that your portfolio is an ideal mix of the vehicles that suit your needs the best.

Top 5 Factors To Keep in Mind Before Investing

Here are 5 aspects that you should remember before buying any investment plans:

The Best Way to Use Your Money

The most essential factor that needs to be considered in order to evaluate if it is the right time to invest your money is to see the best use of your money. The ultimate rule in the guide to staying financially stable is to use your money in the best manner.

For example, you may think it is time for you to opt for investment plans whereas you may have a huge debt outstanding on your credit card. If the interest that you are required to pay on your credit card exceeds the amount of interest you will be receiving on your investment, you are likely to suffer a loss. In this case, the best option is to first pay off your outstanding dues as a priority and then make any investment decisions.

It is also essential to protect yourself against any financial burdens that can wipe out all your investment plans, or land you in a situation with debt. You can buy an insurance policy before investing as a shield against any unfortunate event. It is also important to hold medical insurance for any heavy medical expenses that may arise in the future.

You should also build up a cash cushion for any unfortunate situation as a job loss. You should place these funds in instruments that can be converted into cash easily.

Your Aim For Investing

The determining factor for where to invest your money is your objective behind investing.  You may be someone who wishes that the funds grow at a faster rate, so you don’t mind taking a higher degree of risk because you have more time to recoup your losses. Or maybe you are someone who wishes to preserve your funds in a safe way because you may need it soon, and it is vital for your funds not to lose value.

These goals vary with the different kinds of investment plans or a mix of investments, such as:

Take a Safe Approach if You Need Your Money Soon

If you are close to approaching your retirement date, you would not want to lose your money just when you are going to retire. Therefore, it makes sense to invest in investment plans that are not very risky when you are close to your age to retire. Bonds are an example of safe investment instruments.

Take a Moderate Approach For Better Capital Appreciation

If you are certain that you do not require your money soo, you can afford to take a little risk. In such a case, you can opt for a mix of different stocks of stable companies.

Taking an Aggressive Approach For Higher Returns

If you can afford to take a risk in return for higher gains, then your ultimate goal should be growth. If you can keep your investment for a long tenure, you can invest in companies that plough its earnings back into the future.

It is also possible to invest for both a short term goal such as investing for a down payment for your house and a long term goal such as investing for retirement.

Your Age

A major factor in determining where you should put your money and how much is your age.

When you are investing, it is a major advantage if you are young. This is because you are able to wait for a longer period of time for your investment to grow. You are also more secure when you are young with lesser responsibilities, and you have a higher disposable income. Therefore, it is possible for you to take up investment plans that are riskier but can earn higher potential earrings.

Another added advantage of investing while young is that you can make use of the power of compounding. Being young also does not require larger contributions towards your long term goals, as you have time in your hands.

However, if you are middle-aged and planning towards your retirement, it is essential for you to make the maximum contribution you can so that you can live your life smoothly after retiring. You should also consider investment plans that are relatively safe so that you do not have a high risk of losing your money over the course of time.

Time Horizon For Your Investment

Not all investors invest for their retirement, some have shorter-term goals. Therefore, another factor to determine where to put your money is the time you have before you will need to turn your investment into cash.

The longer your time horizon, the more risk you can take. This is because you have sufficient time to recoup any potential losses. If you do not have a very long time horizon, then you should stick to investments that are comparatively less risky.

It is also important to consider the penalities that some investments hold if you decide to redeem early. Therefore, if any of your investment plans have this requirement, you should be certain that you will not require your funds before maturity.

Appetite for Risk

You must have often heard the popular rule of investment – the higher your appetite for risk, the higher will be your potential returns.

However, not everyone holds the same level of risk for their investments. Not all investors are ready for the volatility of the market.

Therefore, your tolerance for risk depends on your personality traits, which then decides the type of investment you should opt for.

The Bottom Line

With the variety of investment plans in the market in today’s age, it can be baffling when it comes to choosing ‘the perfect one.’ You should take the above factors into consideration before going forward with any decision, in order to ensure that the decision you take is well-informed.