In this globalized economy, one stands in complete dilemma when it comes to selecting the correct funds to invest. The diversification on this field in open ended/ close ended funds or debt, equity, commodity funds creates a big challenge for an investor. Thus, this article is an answer to the queries going on in investor’s mind.
It would not only recommend you the ways to protect your investment and help in selecting the investment proposal but would tell you the ultimate reasons (looters) for your investment failure.
- Inflation– It is the first most robber of an investment as many people get confused on investments through savings because they fail to understand the guidelines related with the investment proposal of money. It is since 1971 when US President Mr. Richard Nexon separated US from gold standards and allowed it to print money. Since then the value of currencies depreciated and commodity prices increased showing the effects of inflation on the economy. Thus, debt fund does not protect you from strokes of inflation as it provides current benefits instead of long term growth. But equity funds do provides protection against inflation as it yields growth on the companies whose share value is expected to increase. So, gold funds are better option in such cases where inflationary rate matters in terms of investment.
- Income tax– Government stands as the watch-dog over your day to day spending, saving, investing, insuring activity so as to acquire maximum taxes from you. Every investment, be it in bonds or mutual funds, the government cuts tax from the returns we get. Thus, equity being a “tax free” fund is the only way to save money in your pocket.
- Interest rates– Equity being saved by two investment looters fails to protect itself from interest rate criteria because when interest rates are high the prices of equity falls as companies start experiencing a downward movement in their growth pattern due to increased expenditure in costs, high discount and interest rates etc. So, gold upstage this looter and manages itself from policy of high interest rates to provide protection to investors.
- Market volatility– The market is volatile in nature as it is subjected to change eventually. The prices of equity, bonds, gold do fluctuate from top to bottom which provides inconsistency to the decision maker. Hence, only liquid funds are capable of protecting itself from this robber but again, it fails to protect itself from other looters which are a sign of a biggest jeopardy in investment.
- Incorrect asset allocation– It is all about the portfolio management and percent of individual holdings against asset allocation. As Mr. William Bernstein said “There are two kinds of investors: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third type of investor – the investment professional who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know“. Conclusively, no investment proposal saves you from this robber.
What type of investment should be selected?
It is always advised to prefer the balanced way to invest your investment as something that is balanced, never has two extremes.
Let us see how?
In inflation the equity part of your balanced investment helps you to save money and prohibits your investment from inflationary pressures.
- Equity devoid of any taxation policy and being a part of your balanced investment helps you from the unwanted tax rates implied by the government.
- Since balanced fund invests in equity as well as debt therefore, equity helps in saving money in your wallet from high interest rates.
- Balanced fund is the only option left with the investor for investing in high volatile market because as suggested earlier, balanced investment contains both debt and equity part and in a volatile market there are some investments that give you a high return whereas there are other investments that give you a negative return. So, with a balanced investment, you can get the best returns which are risk adjusted with minimal market volatility.
- Buying your asset at lower price and selling it on higher is the value created by the balanced fund which gives you better way to increase your money.
Therefore, for every investment there is balanced fund involved which makes your investment not only suitable for the situation but yields you a better return. So, all the very best for your balanced life in near future!