This Christmas Santa gifts tips for a financially happy 2020!

Let us look at what 2019 taught us to welcome 2020 with fresh enthusiasm and better wisdom.

Dec 24, 2019 09:12 IST India Infoline News Service

Christmas and New Year is a time to introspect on the year gone by and look forward with optimism to the coming year. Year 2019 has been a volatile year for investors with confounding events ranging from the US-China trade see-saw to the economic slowdown in India to indices hitting record highs.

However, in the midst of all this chaos, there have been some pearls of financial wisdom that stood out. Let us focus on five such learnings to carry forward into 2020.

1. If you don’t have a plan, it is unlikely you will get anywhere
If you keep investing in equities and bonds at random, it is unlikely that you will get too far in creating wealth. That is why, your investment journey must begin with your goals in mind. Jot down your long-term and medium-term goals such as retirement, children’s education, holidays, home loan margin, and car loan margin. Once you extrapolate the money needed for these goals, you can work backwards and create a core portfolio, which you must stick with.

2. The biggest risk would be avoiding all risk
Even if you invest Rs10,000 per month consistently for 20 years in a liquid fund being risk-averse, you are unlikely to accumulate anything substantial. A liquid fund will give you 6% annualized return which will be 4.50% after taxes. At that rate, it will take 16 years to double your money. At this rate, you cannot even beat inflation. Hence, taking some risk while you can is necessary. Interestingly, over a period of 10-15 years, equities outperform other asset classes with minimal downside risk.

3. Save now, invest soon, spend later
When you spend money, you not only lose the money but also its future value. Instead, when you save and invest the money in productive assets such as equities, it creates future value. The power of compounding works most effectively over the long-term.

4. Steer away from too much debt
As we enter the new year, it is important to remember that too much debt not only puts pressure on your cash flows but also reduces your appetite and capacity to take risks. Some debt such as a home loan or car loan is inevitable, but high-cost debt such as credit cards and personal loans are best kept at the bare minimum. Hence, resolve to repay this type of debt as soon as you can.

5. Worrying doesn't help, planning does
It is natural for us to worry about things such as elections or the trade war. However, the fact remains that you don’t have control over either. As an investor, your focus must be able to look at existing risks and manage them. Most triggers will be out of your control. Hence, once you make a plan and invest, stick to it and believe in yourself.

May you have a financially rewarding year with these tips!

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