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By:

Kaustubh Kale

10 September 2024 at 6:07:15 pm

Four Methods to Choose Investment

One of the most common questions investors ask is: “Which investment should I choose?” The real answer is that no investment is good or bad in isolation. A simple way to judge any investment is the RRLT framework - Risk, Return, Liquidity and Time Period. Before investing in any product, all four factors should be seen together. 1. Return Return is the reward you expect from the investment. It may come in the form of interest, dividend, capital appreciation or regular income. Naturally, every...

Four Methods to Choose Investment

One of the most common questions investors ask is: “Which investment should I choose?” The real answer is that no investment is good or bad in isolation. A simple way to judge any investment is the RRLT framework - Risk, Return, Liquidity and Time Period. Before investing in any product, all four factors should be seen together. 1. Return Return is the reward you expect from the investment. It may come in the form of interest, dividend, capital appreciation or regular income. Naturally, every investor wants good returns. However, return should be understood properly. It is important to look at the real intrinsic / internal rate of return (IRR) of every investment, especially when cash flows happen at different points of time. A product may sound attractive on the surface, but the actual return may be very different when calculated correctly. 2. Risk Risk is the possibility of losing money whether partially, fully, temporarily or permanently. In some investments, the risk is very low. In others, the value may fluctuate significantly in the short term. Direct stocks, equity mutual funds, gold and real estate can create wealth over time, but they need patience and the ability to tolerate ups and downs. On the other hand, fixed income products may offer stability, but they may not beat inflation over the long term. 3. Liquidity Liquidity means how easily you can convert your investment back into money when required. A savings account is highly liquid. Fixed deposits, mutual funds and stocks are reasonably liquid. Real estate may take time to sell. Liquidity matters because emergencies do not come with advance notice. Before chasing returns, every investor must ensure that enough money is available in liquid instruments for short-term needs and emergencies. 4. Time Period Time Period is the most important filter. The investment product should be selected based on when you need the money. If the money is needed within a few months or one to two years, safety and liquidity matter more than high returns. If the goal is ten, fifteen or twenty years away, growth-oriented assets like equity mutual funds, direct stocks and gold-related instruments can play a larger role. The longer the time horizon, the better your ability to handle short-term volatility. Goal-Based Planning This is where proper financial planning becomes useful. Make a table of your financial goals - home purchase, car, vacation, child education, child’s marriage and retirement. Write the amount required, adjust it for inflation and mention the time left for each goal. Once this is clear, choosing the right investment becomes easier. Investment Avenues Broadly, investment avenues can be divided into two categories - those that help beat inflation and those that mainly provide stability. Equities, equity mutual funds, gold and real estate help in long-term wealth creation by beating inflation. Your long-term financial goals should ideally be invested in this bucket - the one that helps your money grow faster than inflation. For your short-term goals, rely more on bank fixed deposits, recurring deposits, and debt mutual funds. Here, safety and availability of money are more important than high returns. A good investment is not the one that sounds exciting. A good investment is the one that fits your goal. So before investing anywhere, remember RRLT - Risk, Return, Liquidity and Time Period. When these four are aligned with your financial goal, investment decisions become much clearer. (The writer is Chartered Accountant and CFA (USA). Financial advisor. Views personal. He could be reached on 9833133605)

Creating Generational Wealth

Updated: Jan 27, 2025

Generational Wealth

In a world where financial security often feels elusive for many families, one important truth stands out: it only takes one person to change the financial narrative of a family for generations. By thinking about money in new ways, taking well-calculated risks, and implementing a sound financial plan, anyone can become the catalyst for building generational wealth, breaking cycles of financial struggle and insecurity.


What is Generational Wealth?

Generational wealth refers to assets—such as property, investments, and businesses—passed down from one generation to the next. These assets help families maintain and grow financial stability over time. Historically, many families, especially those with limited financial resources, have struggled to build and sustain wealth. But within these families, one person who dares to adopt a new financial mindset can change the course for future generations.


How to Create Generational Wealth?

The first step to building generational wealth is thinking about money differently. This involves moving beyond the traditional earn-spend-save mentality and instead focusing on how money can create opportunities. It means understanding the importance of investing in stocks, mutual funds, real estate, businesses, and developing multiple income streams. Simply saving money is no longer enough. The key lies in making strategic investments and allowing money to grow over time through smart financial decisions.


Take Risks

But thinking differently is only the beginning. Taking risks is where real wealth-building potential lies. Many people hesitate to take risks with their money, afraid of losing what they've worked hard to earn. However, it’s crucial to recognize that all great financial success stories involve calculated risk-taking. Whether investing in stocks, mutual funds, real estate, or businesses, smart risks based on research and strategy can yield substantial rewards. Risk-taking is the engine of financial growth.


Take Help from Financial Advisors

Success depends not only on taking risks but also on having a solid financial plan. Essentially, three factors matter: the right mindset, the right planning, and the right execution. Working with financial advisors, educating future generations about money, and setting up mechanisms like trusts or long-term investments ensure that the wealth created is sustained. A key difference between the wealthy and others is that the wealthy don’t hesitate to seek help from experts. Consulting an educated, full-time advisor who uses their experience, expertise, and wisdom to guide you is invaluable.


The message is simple: it only takes one person to break the cycle and take proactive steps toward creating generational wealth. If previous generations haven’t bestowed this privilege upon you, it’s time to take it upon yourself. It’s up to you to become that person in your family who thinks differently, takes risks, and puts a plan in place to create generational wealth for the future.


(The author is a Chartered Accountant and CFA (USA). Financial Advisor.

Views personal. He could be reached on 9833133605. )

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