How the investment strategy works in a high inflation, low interest rate environment
I am 38 years old. I have an extremely conservative position when it comes to investing in the financial markets and I prefer fixed return investments. I invested 90% of my corpus in term deposits and 10% in equity via MF. My investment strategy has always been a do-it-yourself approach as I believe that financial advisors are mere distributors of insurance and mutual funds who are driven by their commissions that eat away at your earnings. With soaring inflation and a low interest rate environment, what investment strategy would be most effective in helping me achieve my goal of financial freedom?
Many investors have no appetite for financial risk, which makes fixed income investments their go-to strategy. What’s great is that Ashish is aware of his ability to take risks and tries his best to save for a financially independent future. The strategy he chose may have worked for him in the late 1990s, when interest rates on deposits were around 10% per annum1.
Unfortunately, we now find ourselves in an environment where deposit interest rates are as low as 4.5-5% per annum, inflation is at an all-time high and markets are volatile due to the aftermath of an ongoing pandemic and Russia. – Ukrainian War. Continuing to invest with this conservative strategy may not be in Ashish’s best interest. His earnings after taxes and inflation will be insufficient to meet the financial goals set.
My advice to you would be to have a little trust in a fiduciary who will put your best interests first. The choice of an investment adviser registered with SEBI is a safe bet because it is governed by regulations that protect the interest of the investor. Yes, financial advisors offer advice on insurance products and mutual fund investments, but the choice to go ahead with the investment will always be yours. Moreover, this is only a tiny part of what an advisor really does.
Their main focus will be to understand your holistic equation with money; this would involve understanding your current and future earning capabilities, breaking down your monthly expenses, managing the debts you have incurred, and writing down your life goals. Based on this, they will craft a financial strategy that will ensure you clear your debts, create a corpus to cushion the blow during unforeseen critical financial needs, and help you achieve your financial goals without drastic lifestyle changes. An advisor’s real job is to make sure you stick to your financial plan and manage your emotions to avoid any knee-jerk reactions that market volatility can cause.
To achieve the financial goals you have set for yourself, you will need to broaden the scope of your investments beyond term deposits. There are a variety of low-risk asset classes like debt funds, government bonds, etc., this would be a great way to safely diversify your assets and earn long-term inflation-proof returns. term. Or rather partner with an ethical financial advisor who would help you diagnose your current risk, risk capacity and risk tolerance and recommend an investment that is right for you to achieve your financial goals.
Question answered by Tarun Birani, Founder and CEO of TBNG Capital Advisors.
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