Managing money matters, especially issues as critical as investments, can be complicated and challenging. Your assets must align with your financial goals, sync with your risk tolerance, and adapt to your investment horizon. As an individual investor, you do not have the expertise, time, and patience to manage your investments effectively. Therefore, it is beneficial for you to engage with a professional financial advisor to get expert guidance on selecting, monitoring, and managing your assets.
Here are some reasons that justify the importance of professional advice in investment:
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Goal-based investing:
Investments driven by financial goals can potentially achieve better results in the long run. A financial advisor will help you chart out your financial goals – both ambitious and improbable ones. The advisor will categorize your financial goals into short-, medium- and long-term goals and create a plan to achieve the targets, enabling better financial management. The advisor can suggest investments to help you achieve financial goals. For instance, if you aim to buy a house in another five years, the advisor can help you invest wisely in equity mutual funds to generate high returns in a short period.
Risk-aligned investment portfolio:
As an investor, your investments must match your risk profile. If you are a high-risk investor with a higher potential to bear losses, the professional advisor will suggest equity and related investments, such as equity mutual funds. However, if you are a low-risk investor, the advisor can recommend investing money in debt mutual funds or other fixed income, low-risk securities. Your advisor will suggest investing through the SIP (Systematic Investment Plan) mode to reduce investment risk.
Offset impact of inflation:
Generally, novice investors invest their savings in avenues that generate attractive but relatively lower returns than the inflation rate. For instance, investing money in National Pension Scheme (NPS), etc., is low-risk and ideal for investors who want fixed income in the future. However, returns from the NPS scheme are comparatively lower (usually between 5-7% annually) than the prevailing inflation rate. In the long-run, such investment avenues might not offset the impact of inflation, ultimately defeating the primary purpose of investing.
Optimum diversification:
A professional has the expertise to understand your risk/reward profile financial goals and help you create an optimally diversified portfolio with the proper asset allocation. To avoid concentration risk, the objective is to distribute your money across different investment avenues. For instance, when investing in mutual funds, your advisor will guide you to select a fund with diversified asset allocation, reducing the risk of volatility and improving long-term returns.
Eliminate emotional bias in investing:
Professional advising in investment is necessary because it eliminates emotional bias. As an investor, your emotions vary with circumstances and market situations. You might act irrationally in a volatile market or panic and make ad-hoc fear-based investment decisions, compromising your long-term goals. Alternatively, financial advisors understand the need and can make objective investment decisions.
Conclusion
Overall, the right financial advisor can aid the success of any financial plan. However, before you engage with an advisor, you should develop some of your own investment expertise and experience to assess their advice better. Alternatively, you can also improve your financial knowledge through the Tata Capital Moneyfy App. Use the Moneyfy App to compare different mutual fund schemes and choose wisely.
