Investment refers to investing money or purchase of goods or assets with the intension of making profit in the long run. For example: Investing money into bank fixed deposit, buying real estate assets, purchasing gold, Investing in financial assets like stocks, bonds, futures, currency, etc and selling on the future date with the hope of appreciation and making profit out of it.
Where to Invest Money:
There are different ways for investing like bank fixed deposit, real estate, gold, currency, stock market, bonds, etc. Before you park your in any of the market one should perform research to analyze returns with time duration based on the past performance and conclude whether your investment opportunities is going to fulfil your retirement expenses. We will get into dept to understand best ways to invest for retirement.
Let us take an illustration to understand with the basic concept of investment. Let us assume Mr. Trader’s current monthly income and expenses report.
|Income:||Rs.65,000/-||(approx. around $1000)|
|1. Home Loan Repayment||Rs.25,000/-||(approx. 39% of Salary Income)|
|2. House Hold Expenses||Rs.20,000/-||(Includes Food, Transport, Shopping, Medical, etc)|
|3. Miscellaneous Expenses||Rs:10,000/-||(Including Society Maintenance and Electricity Bill)|
|Total Monthly Savings:||Rs: 10,000/-|| Calculated as: Income – Expenses|
(Lets ignore the income tax fact for the time)
Portfolio Scenario – 1; Example of Savings:
Let us calculate the retirement and financial planning with few simple assumptions:
- Salary hike is expected to growth at 10 percent per annum year on year.
- The cost of living is likely to go up at inflation rate i.e. by 8% year after year.
- Mr. Trader is currently 30 years of age and Mr. Trader map to retire at the age of 50. Which conclude only 20 years for retirement planner.
- You don’t have it in mind for occupation after you retire and your expenses are fixed and don’t forecast any other expenditure.
Going by these assumptions, here is how the cash balance will look like in 20 years as per Table
|Years||Salary Income p.a.||Expenses Y-o-Y||Net Cash Savings|
|Net Cash Balance at Retirement Age:||1,44,71,603|
Above calculation results are quite shocking:
- After 20 years you have accumulated around Rs.1,44,71,603/- (approx. around $2,22,640).
- Considering your expenses are same after retirement and expenses will continue to grow at 8%. It’s an adequate amount to keep you alive for about 4 years post retirement life but after 4 year onwards you will be into financial crisis. How would you manage year on year after 4 year? Is there any way to make better investment plans good enough for post retirement?
Portfolio Scenario -2; Example of Investment:
Let us understand by above scenario with additional two simple assumptions:
- You have managed your fund and succeed in acquiring 15% returns year on year.
- After 20 years, you do not have to pay home loan further. You expenses are reduced by Rs.3,00,000/- (Rs.25,000 * 12 Months) henceforth.
|Years||Salary Income||Cash Savings||Cash Y-o-Y||15% Return||Net Balance|
|Net Cash Balance at Retirement Age:||2,83,73,662|
Above calculation results are quite joyful:
- After 20 years you have accumulated around Rs.2,83,73,662/- (approx. around $4,36,517).
- You have developed the skills to invest the fund and get 15% returns even after post retirement.
- Considering your fixed expenses are same after retirement and expenses will continue to grow at 8%. It’s an ample amount of money to keep you alive till 21 years post retirement life. Which is good enough to live your life happily even after retirement.
Having figured out, how important is to invest your fund and what kind of returns one should expect by investment to live your life happily even after retirement. Now let us understand 3 things, Why, Where and How to select the asset class that outfit your individual risk and return outlook. Investment assets are characteristics based on risk and return. The following are some of the popular type of investments one should go thru…
Fixed income deposits
Commodities (Valuable Metals)
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» e-Learning Chapter 4: What is Retail Banking and Services provided by the Banks.
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» e-Learning Chapter 6: What is Private Banking and Services offered by Best Banks.
» e-Learning Chapter 7: What is Investment Banking and Services offered by Bankers.
» Currently Reading: What is Investment and How to Start Systematic Investment Plan.
» e-Learning Chapter 9: What is Fixed Income Securities Market.
» e-Learning Chapter 10: What are Bond Funds and Difference between Stocks and Bonds.
» e-Learning Chapter 11: What is Stock Market and How to Invest in Stock Market.
» e-Learning Chapter 12: What is a Mutual Funds and Types of Mutual Funds with Examples.
» e-Learning Chapter 13: What is Futures Trading? Who, Where, How to Trade in Future Contracts.
» e-Learning Chapter 14: What is Options Trading and How does Options Trading Works.
» e-Learning Chapter 15: Banking Quiz – Basics of Banking and Financial Services for Beginners.