Developing a habit of saving regularly is recommended, but just saving isn’t enough for any long-term goal. The age-old wisdom around saving has always been to put a certain amount – around 10 to 20 per cent of one’s earnings – in a bank. Saving is just setting money aside either in a bank account or as cash – something that’s quite common in India. Either way, it does not benefit from the power of compounding, and the individual loses the opportunity to beat inflation.
Arshad Fahoum, Chief Product Officer, Market Pulse, says, “Unfortunately- the save more and save early dictum is only so effective in the long term. While saving is the first step towards methodically compounding one’s wealth, young people should also be aware of their financial goals and learn to invest.”
According to a survey – on the occasion of the World Savings Day — by Scripbox, Indians are recklessly safe with their money, as a majority choose fixed income products or government-sponsored small savings schemes. Also, a large number of Indians simply let their money lie idle in their bank accounts. Atul Shinghal, Founder and CEO of Scripbox, says, “Your money should work for you, which is why investing is the right choice for long-term goals. Investing – unlike saving – is essentially about growth.”
Alternative options that you can look at for long-term goals
It is crucial to start investing early, create a well-balanced diversified portfolio, and invest regularly and patiently in quality assets, always maintaining a long-range view of growth. Note that, the earlier you start, the faster you unlock the returns of compounding. In order to fulfill the long-term goals of a child’s education, marriage, retirement, or even for health care expenses, experts say one needs to save aggressively during the working age.
Rakesh Goyal, Director Probus Insurance, Insurtech Broking Company, says “It is especially important to have goal-based investments as it gives clarity to the individual.” He adds, “Additionally individuals should increase their savings every year by at least 10-15 per cent so that the goals can be easily fulfilled.”
For your long-term goals, take into account your financial goals and risk appetite, and ensure you have an asset allocation in place. Once you have an estimate of how much you will need, experts say start investing either via SIPs, STPs, or as a lump sum, whichever you find more convenient. Shinghal, of Scripbox, says “Investing through SIPs can help you plan your investments and manage your monthly fund flow better, as they allow you to manage volatility over the long-term.” He adds, “If your current income is not enough for your financial goals and the SIPs needed, raise your SIP amounts to get closer to your wealth creation goals, as your income rises.”
Having said so, alternatively, investors can also look at commodities and stocks for long-term goals. Fahoum, of Market Pulse, says “Trading in commodities and stocks is also great for long term goals because of the profitable returns they offer. Commodities in particular allow you to diversify your investments and are not a high risk to the volatility of markets.”
Finally, as an investor, you will have to monitor your portfolio periodically, and conduct a thorough review of your funds at least 3 times a year. Experts say this will help you determine if your funds are performing well and if you need to reconsider certain investments.