By Aaliya Rehman
Investing a portion of your wealth can be a smart way to grow your wealth in order to pay for future needs and wants. Some analysts recommend to most people in their 30s to aim to invest 20% of their gross income per year but there is no perfect number (%) as to how much of money you should invest in stocks as every investor is unique and has a specific investment requirement to fulfil his/her financial goals. You should keep in mind the following factors:
- It is important to understand your financial goals and focus on a holistic financial planning. The decision you make should depend upon your cash flow and ability to budget. If you stay focused on your goals, you should be able to increase the number of your investments as your income increases. Let us assume you are 28 years and have immediate financial needs in the short-term such as marriage, higher education, etc. then you should plan your finances in such a way that your equity allocation grows as. For your long-term goals, such as retirement planning or children's education or marriage, allocate a higher percentage of your savings towards equities, because these goals have more time.
- Understand your investment risks and tolerance level - It is critical for successful investing. When you invest in the stock market, your principal amount is exposed to risks like market risk, liquidity risk, concentration risk, inflation risk etc.
- Decide your time horizon - Stock investments have generated good returns over the long-term. Hence, an investment horizon of 7-10 years in some cases is considered ideal. If your financial goals demand a shorter horizon, then you might want to create a diversified portfolio that may help you fulfil your goals within the stipulated time.
- Manage your Expenditure – It is the most critical component because you often tend to get wooed and end up making this portion equivalent or in some cases even larger than your entire salary. So, it is very important to regulate your expenses and assign a fixed amount to it.
- Keep Emergency funds separate -In this component, you tend to save a small amount each month regularly to be used up in cases of emergencies. Maintain this component regularly with discipline and do not touch these funds until you actually face an emergency.
These factors will help you invest a fixed part of your income into different assets across a diverse portfolio and enhance your financial security and wealth accumulation. It is equally important to review things over time and make any changes to your plan accordingly.