The idea behind a safe investment strategy is to not put all your eggs into one basket.

Money Management Lessons from the Wealthy
Product Partner Friday, December 22, 2017 - 14:09

When we look at ultra high net worth individuals (UHNWIs), we believe that they reached the pinnacle through an amalgamation of luck, talent, hard work, and some secret investment strategy. However, that may not really be the case.

UHNWIs actually understand the basics of having their finances work for them and they know how to take risks in a calculated manner. So, the notion that they may have unearthed a magical investment strategy does not hold true.

Investment gurus advise that the first thing to ensure when putting money into the market is to not lose it. It is seen that most UHNWIs stick to this basic investing principle and understand what mistakes should be avoided. Most of these mistakes can be classified as common knowledge and can easily be picked up by the not-so-wealthy as well.

Create an investment strategy

Putting together a robust investment strategy is one thing that we can learn from the wealthy. You should first establish personal investment goals before implementing the investment decision. UHNWIs actually envision where they want to be in 5, 10, or 20 years and they customise their investment strategy accordingly.

When you come up with an investment strategy for yourself, including health insurance coverage in your financial arsenal is a great idea. This plan not only protects you financially from

several life-threatening diseases, it also gives you the assurance that your family is secure even in your absence.

Focus on non-volatile investments

If an individual gets a windfall he/she would, more often than not, put the money in stocks or bonds. The high liquidity can be attractive to many, but the smaller entry price is the greatest luring factor. But this does not necessarily mean that investment in the marketplace is the ideal way to go.

UHNWIs allocate their money evenly across physical assets, such as commercial and private real estate, gold, land, or even art. To balance out the volatility of the stock market, investments in real estate are highly common. The downfall of such investments are, of course, higher investment prices and lower liquidity. The ultra wealthy do not seem to mind this at all, in fact it is beneficial to their investment portfolio. These assets pay off over the long term, and handsomely when they do!

So the biggest learning from this strategy would be to invest wisely in the stock market and look to buy property or gold every once in a while. In case you are unable to independently make prudent investment decisions, you can buy a term insurance plan that provides you protection and investment benefits. In insurance parlance, such a scheme is known as Unit Linked Insurance Plan (ULIP) and it is widely offered by multiple insurance companies today.

The power of compounding is magical. So do not compare your wealth with your contemporaries; instead invest it in instruments that suitably provide you greater returns with minimal risks. If you do reach your desired level of wealth, you can always cash out and buy an item that has been languishing for long in your wishlist.

Use credit wisely

Majority of the high net worth investors are of the opinion that one can build wealth through thoughtful use of credit. This tactic can be easily followed by a common man for long-term savings. If you are diligent in paying off your credit card debts in full every month, you can think about taking a rewards card and earn perks for your spends.

Another way to utilise your credit effectively is to not prepay your existing personal loan (provided that you got a good deal on the interest rate). Instead, you can pay the due amount as per your personal loan EMI schedule and use the additional funds to plump up your retirement kitty. You will also be able to maintain a good credit score this way.

Make tax-conscious decisions

More than half of UHNWIs are of the opinion that it is better to make investments in instruments that provide tax benefits, as opposed to those providing higher returns with heavy tax

deductions. This reinforces the fact that the focus should actually be on the net payment received from the investment. Average investors can learn from this strategy and invest in instruments with tax benefits such as child insurance plans and Public Provident Fund (PPF).

Rebalance your investment portfolio

It is crucial to review your investments on a regular basis so that the portfolio is adequately diversified and suitably allocated. You can take the assistance of a certified financial advisor for the same. The ultra wealthy individuals rebalance their investment portfolios at regular intervals; some even do it on a weekly basis!

To conclude, the idea behind a safe investment strategy is to not put all your eggs into one basket. You should ideally have a diversified portfolio which includes stocks, mutual funds, bonds, and other non-volatile investments such as real estate and collectibles, find all in one in bankbazaar.com. This way, even if something fails, you are adequately protected by the other investments. Also, understand the difference between good and bad debts and apply for a personal loan online only for funding the purchase of an asset that increments in value over the long term.

This article has been produced by TNM Marquee in association with BankBazaar.