Protecting your finances means different from what was perceived earlier. Today, in order to save the finances, individuals believe in diversifying their investment (and not putting it in a scheme that fetches stable but low income), diversifying income sources and more stringent financial planning. These days, financial instruments are also more than what it used to be, say a decade ago or two.
However, aimlessly going through with different products from the trust companies might get complicated if one does not have a proper strategy. Getting in touch with a reputable investment services provider will save you a lot of headache in the future. So, to help you, discussed below are seven tried and tested strategies using which you can easily diversify your income to protect your finances;
- Portfolio Diversification
An old adage says that it is foolish to put all your eggs in one basket, regardless of how perfect it seems. Retirement fund may appear to be the best option, but putting all your finances in that is not a good idea. Retirement funds are not 100% secure, and therefore, diversification is the need of the hour. Retirement funds can give the much-needed stability, but can also take away the opportunity for getting better returns through diversification.
In the years, when you are still in a job,look for investing in funds with different compositions such as equity linked schemes and secured debt funds. Proper diversification of the funds will help you sail through the rough waters easily.
- Passive Income
Those who are unaware with the concept, ‘Passive Income’ is earnings that an Individual gets from the rental property, limited partnership or through any other venture, where you are not actively involved. It is very important to create a source of passive income because you don’t have to worry about the installments for different schemes even when you have quit the main job.
There are several websites that offer the source of passive income, like allowing investors to invest in real estate through crowd funding and other sources. Or else you can go solo and contact a real estate agency for advise on rental property options.
- Long-term perspective
Markets are cyclical, and therefore, it is better to stay away from every swing and focus on long-term goals. A portfolio should reflect the long-term goals rather than short-term perspective. Long term goals such as retirement, higher education of the kids, their marriage, and sudden illness and so on, should be at the helm while making a portfolio.
For your short-term needs, there are various instruments that can take care of that. It is always better to invest in those. A good financial planner from trust companies can easily suggest the financial instruments that meet your requirements.
- Do not keep retirement fund as collateral
We tend to take a large amount of money as loans by keeping certain deposits as collateral with the banks. However, this would not have been the condition if proper diversification was done. It is better not to spend money on the depreciating assets. Rather, one should invest in assets which offer returns, dividend, and interest incomes in return. Such incomes will help a great deal during the tough time, and you will not have to take a loan from the banks at high-interest rates.
- Diversifying by Sector and Industries
There are equity- linked and balance funds that offer you the opportunity to invest in various sectors and industries. The composition of these funds is such that the maximum concentration of the total fund is on a particular sector or industry. Before investing in a fund, it is important to assess the future performance of that particular industry.
- Diversify by correlated risk
If the correlation between two asset classes is high that means both the assets will give either positive return or negative return at a time. Most of us put all our saving in asset classes that are highly correlated such as going for bank fixed deposits, as well as, Provident fund. This is a wrong strategy.
In a well diversified portfolio, the asset return should not be correlated. This means that if a particular asset class is generating a negative return, there should be another investment to compensate it.
- Start at early age
The key to better returns is start investing at an early age. You will be able to take higher risks, and in turn earn more returns by investing in high-risk high return assets at a young age. Planning for retirement should only be done after the age of 35. Putting all your money in the retirement fund at an early age will mean that you are losing the opportunity to earn higher returns.