Whether you are just getting started on investments or wanting to broaden your investment portfolio, there will no dearth of financial advice that comes your way. People will tell you what to invest in, and what to avoid, and while that is all great, the truth is that the advice might not even apply to you. There are many investment options to choose from, and many of them might seem risky at the outset, but offer great returns.
Since investments are such a personal thing, it is important to listen to advice but also take decisions based on your interests and understanding, more than anything else. The right investments should be based on your goals, risk capacity, and tenure for which you want to lock down your money. So if you are new to investing, here are some common pieces of financial advice that you should not listen to:
#1 Investing in stocks is always risky
We have all heard this over and over. But it is not completely true. Yes, investing in stocks is riskier than many of the other investment options that you can add to your portfolio but it is not always the case. Short-term investments in stocks can be quite risky, as immediate fluctuations in the market can affect your returns. But long-term investments if done wisely can be quite beneficial and devoid of risks.
Stock investments have historically been associated with high returns, even on negligible investments. Now, the high returns associated with the stocks are associated with higher risks, and the rationale of the whole structure is that investors who take greater risks in investments should be rewarded with greater returns. However, there are many ways to reduce this risk with strategies such as effective diversification of the stock portfolio, and investing only in stocks that offer steady returns.
#2 Real Estate is the safest investment
Another piece of advice we have heard from our uncles and aunts when we start investing – Real Estate is the safest kind of investment. Truly, real estate investment is one of the safest forms of investment that you can park your money in. But do not for a moment think that it does not have its share of risks. Real estate investments are subject to asset-level risks.
Asset-level risks are ones that are caused due to the type of investment that you have put your money in. Residential real estate is a safe bet as they are always in high demand, whereas commercial real estate can offer lower returns. But if you invest in a hotel or malls that function based on seasonal sales wherein your returns can fluctuate. Furthermore, there is definite liquidity risk in real estate investments. While investors find it easy to invest in real estate, converting the asset into cash in times of need can be a time-consuming process, and can barely be of use in emergencies.
#3 Lending to peers is not fruitful
They say that investing directly in businesses or individuals is a risky affair. But the saying holds for investments where emotions are involved, wherein you might overlook potential red flags that you might otherwise notice right away.
But in the unique style of investment that is P2P lending, you would be investing in businesses and individuals who have a verified business plan with set targets. You can interact with them and ensure that you will get higher returns before making any investment decisions. The process ensures that the investment is mutually beneficial, even though it might be a bit risky.
Even then, if you make the right investment, you can benefit from higher returns and low maintenance of your investment. Moreover, you can also effectively diversify your portfolio with the added advantage of being able to liquidate your investment in times of need.
#4 Invest the majority of your money in term deposits
Sure, term deposits are one of the safest investment options there are, and offer much more security for your funds than many other potential additions to your portfolio. One of the major pros that work in the favor of investors is that the process of investing in term deposits is very simple and hassle-free. Moreover, there are no additional fees for investing in this instrument, and most of your money returns with an additional interest element added to the sum.
However, if you think term deposits should comprise the majority of your portfolio, you should think again. Firstly, if you go for a floating interest rate on your term deposit, it is subject to economic fluctuations. Alternatively, if you go for a fixed interest rate, the returns that you achieve might be substantially lower than what many other investment options may offer within the same tenure. Term deposits can be a great addition to your portfolio, but to benefit from it, you should consider combining them with other major investment instruments that might offer higher returns.
#5 You need a financial advisor to manage your money
Let’s face it: not all people are financial experts. That is why some people gain expertise in it and become bankers and advisors, and some can barely manage their investment portfolios. But it would be unfair to stipulate that it is not possible to build a good investment portfolio without a financial advisor. Financial advisors can help you with taxes, guide you with investments but in the end, you would need to keep a track of your investments anyway.
Then why not learn how to invest from financial advisors and take complete control of your financial portfolio. Study on the primary long-term and short-term investments that can fetch you the desired returns within the stipulated period and carry out those investments yourself. Many investors constantly monitor their portfolios and ensure that they can get the best out of their investments.
Financial investments can be as daunting you make them out to be. They can also be simple and hassle-free, and carry lower risks as long as you choose the right investments. Moreover, you can also multiply your wealth and savings substantially by choosing investment options that can offer attractive returns in the short-term as well as the long term, for your financial portfolio. The key is to diversify your portfolio so that the risks are minimized, and the risks are maximized.