If you are financially aware, you have probably thought of how to grow your wealth. Some of the most accomplished investors have time and again said that nobody can predict the market. Hence, it's always better to diversify. And diversify in such a way that can stabilize your portfolio.
When you think of investments, you may probably be looking at traditional means like a fixed deposit. But today, the financial industry has evolved and there are innumerable options. In fact, alternative investments today are propelling wealth for many investors.
This blog will cover why we should look at various investment mediums to optimize our portfolio.
5 Reasons Why Alternate Investment Mediums Are Good For You
Let's analyze the reasons below:
- Not Controlled By Market Forces: Let me give you an actual example from the stock market.
An investor started his stock journey in 2016. He parked his money in a large-cap stock, which was doing quite well. The returns were fine till 2018, but then the market started dipping and as of today, his stocks are not of great value.
These situations are quite common when you invest in stocks or equity mutual funds. Hence, investing in instruments that give you decent returns is always advisable but are not maneuvered by market forces.
- Mitigation Of Risk: Risk mitigation can be a slightly complicated concept. Let us try and explain. Imagine you have two baskets of eggs and you're walking on a slushy road.
One basket falls from your hand and breaks. However, you already have another basket of eggs to return home with because you had bought an extra dozen.
The investment avenue can be explained similarly. If you invest all your money in just one instrument, you may lose your money when the market fluctuates. However, if you adequately invest in a few more stable financial instruments, your portfolio will remain balanced, even when the market is down.
- Stable Income: Since the time you started earning, you've heard multiple people say, "FD kar lo." And if you think that only conventional sources like FDs can give you a stable alternate income, then you're wrong.
Many private, nontraditional platforms can give you stable returns. These platforms and financial instruments are coming to the Indian forefront slowly but surely. For example, leasing as an investment option can yield inflation-beating returns if invested through the right medium.
- Tax Benefits: We're constantly looking for ways to save tax. Apart from the traditional PPF, Sukanya Samriddhi Yojana, and other government-backed schemes, there are plenty of options to tap into.
There are mediums like investment from leasing and ELSS mutual funds that can give you tax benefits and returns. However, since market forces drive the latter, it is comparatively riskier.
- The Power Of Compounding: Understanding the power of compounding can make financial planning more effective for you.
It is a simple concept. You invest INR 100 in an asset and make a 15% profit, meaning your principal amount becomes INR 115.
When you re-invest the money, you will start receiving returns of INR 115 and not INR 100. This amount will eventually multiply and gather wealth over a while.
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