Parents are often their child’s first financial advisers. On most occasions, a father teaches the nuances of personal finance and investment to his child. With Father’s Day around the corner, it is a great time for fathers to teach their children the importance of investment, budgeting and saving.
While your father might’ve told you about the various financial instruments to consider, in all probability, he must’ve told you about the prudent investment avenues that he himself has invested in, including .
Here are a few pieces of investment advice your father has probably given you:
Save a certain percentage of your income
Your dad has probably told you to save a certain percentage of your income every month without fail. Ideally, you should try to save at least 20% of your income and utilize the remaining 80% to address various needs.
This inculcates a disciplined savings habit and helps you to accumulate wealth to address various life goals. It also helps curb discretionary expenses, so essential to compound wealth in the long-run.
Invest in fixed-return instruments
Once you’ve saved a part of your income, your dad may have told you to invest it in safe/ fixed assets like fixed deposits. While he probably has mentioned about the growing popularity of equities in a modern portfolio, he must have told you about FDs first. This is because FDs are non-market linked and you are assured of guaranteed returns without worrying about volatility.
Though FD interest rates have gone southward of late, Bajaj Finance Fixed Deposit offers higher returns than the market average. One can earn up to 8.75% returns on Bajaj Finance Fixed Deposit as against the small returns offered by bank FDs. Senior citizen FDs are eligible for higher returns. This online will help you in calculating the returns.
Additionally, Bajaj Finserv also brings pre-approved offers for personal loan, home loan, EMI finance on different products, and other financial services. This simplifies the process of availing financing and helps save time.
Insurance is another instrument that your dad has possibly asked you to contemplate. He has probably told you about the various types of life insurance policies available in the market. If you’re young, he probably has advised you to opt for a term insurance along with a health insurance policy. However, remember to upgrade your insurance coverage at different life stages.
The power of compounding is your friend
Your dad has probably told you that you should make long-term investments to accumulate wealth. He’s right!
This is due to the power of compounding, which works better in a long term. So, if you invest in an FD for 5 years instead of 3, you’re bound to get better returns. For example, if you invested Rs. 3 lakh for a period of 5 years at an annual FD interest rate of 8.65%, you would get a maturity amount of Rs.4, 54,224.
On the other hand, if you were to invest the same amount at the same annual FD interest rate for 3 years, you would only get Rs.3,84,778 as the maturity amount. That’s a difference of Rs.69,446.
This difference due to the power of compounding, a disciplined investor’s best friend. Investing in mutual funds via systematic investment plans (SIP) for the long-term also brings compounding into play.
Have a diversified portfolio
One of the essential aspects of investment is not to keep all eggs in one basket. Your dad must have told you about the importance of diversified portfolio to compound wealth. While investments in equities help generate inflation-adjusted returns, fixed deposits not only prevent erosion of wealth during market fluctuations but also provide instant liquidity.
It means you can liquidate your deposit anytime you want to obtain the desired funds. FDs also help build an emergency corpus and are ideal to park money to address various short-term goals such going on a vacation, home renovation, purchasing a car or making a down payment for a house. A diversified portfolio helps you better manage your finances and be prepared for an exigency.
Review your investments regularly
This is possibly another piece of investment advice that your dad has given you. Reviewing your investments tells you which ones to keep and which ones to discard. Note that reviewing doesn’t mean tinkering with your portfolio but to ensure that you are on track to address various essential life goals.
A periodic review also helps gauge steps to be taken to ensure that the portfolio remains balanced and cushioned from market swings. Moreover, reviewing also tells you how diversified your portfolio is, and what you can do to improve the diversification, if needed.
Have a retirement plan in place
Knowing well that the age of pre-defined pension benefit is over, your father must have told you to have your retirement plan in place. Retirement planning is an essential life goal and should take precedence the moment you start earning.
Saving a certain percentage of income in safe instruments like FDs help in stress-free retirement.
So, go to your father this Father’s Day and learn the basics of investment that would help you secure your financial future.