Article

6 Financial Moves To Maximize Your Returns

03 May 2019

The new financial year has just commenced and it is time to revisit your investment plan for the year. Where should you invest and what sectors and stocks to avoid. But maximizing your returns is not just about these questions. It is a lot more comprehensive. Here is how to take a 360-degree approach to maximize your returns.

Start off by making a financial plan

This is considered to be your starting point in your financial journey. When you make a financial plan you set your medium term and long term goals, and create a credible plan to work towards these. These are your milestones and include goals like your retirement fund, children education fund, funding your next vacation, funding your home loan margin, among others. All these require planning and financial allocation to achieve them at a future date. Creating a financial plan, extrapolating the value of your goals, and creating a time-bound plan are the core of financial planning.

Start SIPs and tag them to goals

You cannot wait for lump sum investments as it may take too long. Start immediately and use the SIP approach to invest in mutual funds. SIPs can match with your income flows and also the power of compounding will work in your favour in the long run. More importantly, these SIPs give you the advantage of rupee cost averaging so you don’t worry about timing the market.

Focus on equities for long term goals

You need equity or equity funds that can create value over the long run. While equity is risky in the short run, it has the potential to outperform all other asset classes in the long run. Also, in the long run, the biggest risk for you is not taking any risk. Equity fits best into long term goals. Of course, don’t try to take sectoral risk; instead stick to diversified funds.

Focus on time rather than timing

The longer you stay invested, the more money you make. You cannot practically enter at bottoms and exit at tops. In the process, you can let time work in your favour than trying to focus on timing the market.

Reduce your debt

If you have high cost debt in the form of credit cards and loans, you will never create worthwhile wealth. Apart from the EMI commitments, there is high interest on these debts and you are unlikely to earn that much on your investments in the short run. A better way is to prioritize debt reduction. At least, the high cost debt has to go out quickly so that you have enough cash flows to leverage in the future.

Use futures and options

Warren Buffett may have called futures and options weapons of mass destruction, but it largely depends on how you use it. They are useful health supplements for your portfolio of assets. For example, you can hedge your risk in the market with put options. You can lock in profits with futures when the market is volatile. Alternatively, you can also buy calls or puts and take a directional view with limited risk. It is useful to understand this risk management tool to enhance returns.

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6 Financial Moves To Maximize Your Returns

03 May 2019

The new financial year has just commenced and it is time to revisit your investment plan for the year. Where should you invest and what sectors and stocks to avoid. But maximizing your returns is not just about these questions. It is a lot more comprehensive. Here is how to take a 360-degree approach to maximize your returns.

Start off by making a financial plan

This is considered to be your starting point in your financial journey. When you make a financial plan you set your medium term and long term goals, and create a credible plan to work towards these. These are your milestones and include goals like your retirement fund, children education fund, funding your next vacation, funding your home loan margin, among others. All these require planning and financial allocation to achieve them at a future date. Creating a financial plan, extrapolating the value of your goals, and creating a time-bound plan are the core of financial planning.

Start SIPs and tag them to goals

You cannot wait for lump sum investments as it may take too long. Start immediately and use the SIP approach to invest in mutual funds. SIPs can match with your income flows and also the power of compounding will work in your favour in the long run. More importantly, these SIPs give you the advantage of rupee cost averaging so you don’t worry about timing the market.

Focus on equities for long term goals

You need equity or equity funds that can create value over the long run. While equity is risky in the short run, it has the potential to outperform all other asset classes in the long run. Also, in the long run, the biggest risk for you is not taking any risk. Equity fits best into long term goals. Of course, don’t try to take sectoral risk; instead stick to diversified funds.

Focus on time rather than timing

The longer you stay invested, the more money you make. You cannot practically enter at bottoms and exit at tops. In the process, you can let time work in your favour than trying to focus on timing the market.

Reduce your debt

If you have high cost debt in the form of credit cards and loans, you will never create worthwhile wealth. Apart from the EMI commitments, there is high interest on these debts and you are unlikely to earn that much on your investments in the short run. A better way is to prioritize debt reduction. At least, the high cost debt has to go out quickly so that you have enough cash flows to leverage in the future.

Use futures and options

Warren Buffett may have called futures and options weapons of mass destruction, but it largely depends on how you use it. They are useful health supplements for your portfolio of assets. For example, you can hedge your risk in the market with put options. You can lock in profits with futures when the market is volatile. Alternatively, you can also buy calls or puts and take a directional view with limited risk. It is useful to understand this risk management tool to enhance returns.