We often tell our kids to look into the eyes of fear and face it, as the only way to overcome it. Investing is something similar. To many, the whole idea of managing one’s investments can be frightening at the beginning. But the more time one spends understanding it, the more comfortable one becomes, leading it. In the end, the process of investment turns out to be neither complicated nor too risky. There are smart ways to invest your money that can set you on the path to financial freedom. Let’s look at them. 

Why do we invest? 

Our money get some interest when lying in the bank accounts. That interest may be little as compared to the inflation rate prevalent in the market, which effectively results in degrowth (negative returns) of your money, if not invested in higher return options. Your purchasing power becomes less if money keeps sitting in the bank. When you invest, you can easily outpace inflation and allow your money to grow (either appreciation of capital invested and/ or earn an interest/dividend income). This helps you build wealth to support you for the long term and to meet your financial goals in your life such as a child’s education, marriage, retirement planning, buying your own house, etc. Money has a time value. So if you start investing early, it will start having a compounding effect on that investment. 

What are smart investments? 

You have a choice to customize your investments into several types. These types can be various asset classes (equity, debt, gold, real estate, etc) or can vary into tenures (short, medium or long term). 

Depending upon your personal financial goal(s), you make the selection of the type of asset you want to invest in, the returns that you are looking for yourself and the time horizon you have to let that money remain invested. 

Some investments are liquid and can be redeemed if that invested money is required at short notice for any emergency. These investments can be short-term mutual funds, bonds, fixed deposits, etc. 

Some investments are medium to long-term and can best yield desired results only when they are allowed to grow. These investments can be long-term mutual funds, equity stocks, gold, real estate, etc. 

Some of the smart choices can be investing in Index Funds or ETFs (where existing indices are replicated by the fund manager), or investing in stocks (after thorough research, are sound companies, with the potential to yield dividends) and where the intrinsic value of the stock is higher than the actual trading price prevalent in the market at the time of investment and hence has a margin of safety. 

What are NOT smart investment strategies? 

Chasing high-risk, short-term quick wins or returns should be avoided such as investment in cryptocurrency, and highly volatile stocks. 

Define your financial objectives clearly at the beginning and map your investment decisions appropriately.