Financial Introspection

Why Are You Investing?

In continuation to my earlier column, I assume that my readers by now comprehend the essence of asset allocation and risk tolerance. The next step towards investment is all about self-introspection and asking oneself the primary motive behind investing. Ask yourself about the purpose of investing. Every penny that you save and invest should have a rationale behind it. Is it about sustaining your monthly expense, buying your dream home, planning your child’s future, retirement, wealth creation or even about closing your outstanding loans, etc.? So while you sip on your ginger soda after an uncompromising Parsi meal, mull over your financial objective and ask yourself why are you investing? The earlier you plan it the easier it is to achieve your financial goals.

Every goal should define a time horizon for your investment, which percolates down to selecting the right instrument to invest in. Your financial goal can be considered a short-term, medium-term, or long-term goal. This will help select the right instrument appropriate for the said duration. The longer the duration the higher the probability of earning better returns, having said this, at the outset, the first priority should be to close your liability which is like a hanging sword. Loans simply reduce your net worth and increase your level of insecurity. At the end of the day you owe someone money. Once you close your debt, it will leave you with more money for savings and investing.

Your discipline towards attaining your financial goals will determine how much wealth you create. Simply investing without a financial goal is like shooting in the dark. As someone rightly said, a plan without a goal is wishful thinking.