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Here’s Why You Should Allocate Your Money with a Purpose

Jun 20, 2018 | 2 years ago | Read Time: 3 minutes | By iKnowledge Team

Imagine you get up in the morning, get ready, leave your home and get in your car. Sometime after you hit the road, you realise that you do not know where you are going. You don’t know the purpose behind you driving the car nor do you know your destination. You are just wasting petrol and your time. This is what happens when you invest your money without figuring out its purpose. So, let’s look at why you should allocate your money with a purpose and how you can do it.

1. Don’t go in blind, know what you are getting into

Before investing, you need to know your investment avenue and not jump headlong without doing your homework. You need to thoroughly research about the investment avenue.

But before doing that, you need to ensure that you know what you expect out of your investment. This is because an investment has the potential to help you achieve your life goals. For example, if your life goal is to get financial security/independence in your retirement years, you could invest in annuity plan with critical illness rider. If your idea is to see your money grow and generate long-term returns, ULIPs can be a good option.

Thus, you need to understand your requirements and what the investment avenue has to offer before investing.

 2. Get the balance between risk and return

When you invest with a purpose, you understand your requirement and know your end goal. You also have a better understanding of the amount of risk you can afford to reach your goal. Thus, you need to find the right mix of risk and return when investing. Getting the balance right can make all the difference between you meeting your goals and losing your money.

3. Too much of anything could spell disaster

You need to understand where to draw the line. If you invest all your money in equity, you might get high returns, but you will have to compromise on stability. Investing in only debt funds would mean that you might be losing out on higher returns. Investing only to get returns and not to secure your loved ones’ future would also not be advisable. That’s because you might ultimately end up not diversifying enough or yet worse, investing in just one investment avenue. However, if you have a purpose when investing, you would be unintentionally diversifying your investments. 

 4. Specifics mean compartmentalization

Say, one of your investments is failing drastically. Then, compartmentalization can safeguard your objectives because your other investments are safe. Also, this will mean that your investments are handled by experts. All of this is easily achievable with directed investments. When you start investing, a purpose can help your mission of directed investment and compartmentalization. This is because a purpose ensures that all your investments move in a specific direction towards your goals.

5. Specialization means better performance

When it comes to improving the performance of your investment, a purpose can help you. Investing in different avenues helps you choose the best that’s available in the market for every purpose. This helps you optimize and diversify your investments. For example, to secure your family’s future, you might’ve chosen a term insurance with a medical rider. However, if your family is prone to medical ailments, you would want a specialist to handle your finances. Thus, you would want to invest in medical insurance.

Bottom line

Investing without a goal or allocating money to assets without purpose is like an exercise in futility. However small or big the goal may be, you need to have one for each asset allocation. Remember if you aim for the moon, you’re bound to land among the stars.

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Advt. no.: IA/May 2018/4016



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