Almost anyone who has some amount of surplus capital is faced with this question. More so with youngsters who have just started their careers, and have fewer responsibilities to cater to. But there never seems to be a very convincing answer that can be found. In this article, let's take a deep look and find out where we get to in our quest for figuring out the best possible choices when it comes to parking our money.

Investing is Personal

There is no one size fits all approach when it comes to investing. One must understand that just because something worked for someone does not mean that the same will work for someone else. On these lines, it is important to emphasize that there are notions people have about replicating the investments of the most successful investors, which are almost certain to fail. Why? 

1. Do you have access to the quantum of capital like the investor you are trying to follow?
2. Do you know the complete list of investments that he is making? What if you only have access to the list of his lowest-performing assets?
3. Do you get to know when he is entering or exiting his investments?

As you will easily notice, the answers to most of these questions are negative. Therefore, even if it was a good idea to simply replicate the investments of successful investors, there is clearly no access to sufficient information. But wait, the idea is not good. Simply because every investment has an objective and this objective varies with every individual.

Every Investment Must Have an Objective

You must not invest anywhere unless you know what you are expecting out of that investment. Every investment must have at least one desired outcome. For example, the most common being, capital appreciation. Other goals are the protection of capital, tax savings, keeping up with inflation, saving for a life event etc. But that is only a part of the story. These words have no meaning unless you attach a number to them. How much capital appreciation are you looking for? What is the maximum drawdown you can accept? Does preservation mean "no erosion" or are you okay with the erosion of capital with dwindling currency values?

Once you have an answer to this question, you'll be faced with the other side of the coin. What are you willing to pay to get your desired outcome? For capital appreciation, how much risk are you willing to take? For the protection of capital, are you willing to lose the opportunity of capital appreciation? Or maybe, are you willing to lose your access to liquid cash, should there be a lock-in period for some insurance plan? For a retirement plan are you willing to commit to paying a premium for a given period of time?

Yes, like every other thing in life, investment is always a tradeoff. We must pay something to get what we want. But the point here is, we must know what exactly we want before we commit our money. 

Once we are able to answer these questions, it will be very easy to notice how different we all are in terms of our investment goals. Evidently, our choice of investment options will also differ. More importantly, you will be well aware of your expectations and will know what to ask for when a broker tries to sell you an investment product. 

Money is Not Cash

Why you must rack your brains to invest your money somewhere is a question you might have. Please remember, that the money you are willing to invest did now walk into your bank account out of nowhere. You and your family members toiled countless hours to earn that money. You spent almost two decades of life in formal education, with all its rigour, costs and effort, in order to become qualified for the profession that you have today. so the money you have today, is not to be treated like another piece of paper. It is your toil, in hard copy. Value it, and value it highly. 

When you need to keep it somewhere, you will have to be aware of where you are keeping it. Would you send your child to an unknown place just because someone asked you to do so? Treat your money similarly. If you're not, probably you are not valuing yourself enough. 

You Will Change, So Will Your Priorities

Something we all know, but often forget to align our investments with. Why not create a simple matrix of financial priorities for yourself? Not only will you be able to plan more wisely, but also be clear about what you really want to achieve with your financial resources. Priorities keep changing as we progress in life and therefore a rigid plan is sure to fail. While priorities decide our investment objectives, one thing that is always necessary is safety. In exploring financial products that align with your objectives, be sure that you are making choices that are safe to the extent you want them to be. Make sure you read our article on the pitfalls of financial products before you decide on your next move.


Returns Can Be Non-Monetary

Investing in assets that generate income is fine. But it is not necessary that the return on investment will always be monetary. Based on your priorities, and the stage of life you are in, you will need to invest in education, skills, fun and relationships. All of it will cost money. You will need to buy books. you will need to buy tickets to a concert, and you'll need money when you want to buy something nice for the person you care about, to make him/her feel happy. Yes, and each of these is an investment. 

The Most Important Investment

Money is a resource and is renewable. What you spend today can be earned again. But investing is not always about money. We invest our resources, money being one of them. The most valuable resource we have is time. Because it cannot be earned back. While we are busy thinking about growing our money, we must also think about where we invest our time. In fact, that should be a bigger concern for us given the nature of the resource.

We must invest our time in activities that add meaning to our lives, that add to our purpose, that spread smiles and help us grow. After all, we want to earn money for a reason. And we cannot let that reason slip out of our mind.