Why invest only your surplus funds in equities?
In a rising markets many individuals want to bet every rupee on equities. The reasoning for them is very simple - make the most of what they have. However in real life this may back-fire.
Each individual has many financial goals in life. Some of these are long term goals such as retirement, bequeathing wealth to next generation, whereas some are short term goals such as a foreign tour next year, paying school fees of daughter six months from now. Also one may come across urgent need of money due to sudden hospitalization in family, an accident causing financial loss. Insurance may not pay entire expenses in such situation and one may have to pay from his pocket. One must provide for such expenses in short term.
If one uses the money meant for short term financial goals to trade in equities he is exposed to a big risk. What if the markets tank quickly and he suffers major losses? In such a situation, he is will find it difficult to pay for his short term goals. Using short term money for investing in shares, may cause cash flow crunch. It may not only lead to monetary losses but also take away peace of mind. Always invest that money in risky assets such as equities which is left after keeping money aside for short term goals and meeting emergencies.
Happy Investing
In a rising markets many individuals want to bet every rupee on equities. The reasoning for them is very simple - make the most of what they have. However in real life this may back-fire.
Each individual has many financial goals in life. Some of these are long term goals such as retirement, bequeathing wealth to next generation, whereas some are short term goals such as a foreign tour next year, paying school fees of daughter six months from now. Also one may come across urgent need of money due to sudden hospitalization in family, an accident causing financial loss. Insurance may not pay entire expenses in such situation and one may have to pay from his pocket. One must provide for such expenses in short term.
If one uses the money meant for short term financial goals to trade in equities he is exposed to a big risk. What if the markets tank quickly and he suffers major losses? In such a situation, he is will find it difficult to pay for his short term goals. Using short term money for investing in shares, may cause cash flow crunch. It may not only lead to monetary losses but also take away peace of mind. Always invest that money in risky assets such as equities which is left after keeping money aside for short term goals and meeting emergencies.
Happy Investing
Source:Moneycontrol.com
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