Mix of investments is ideal in early stages of career
Krish has been offered an overseas assignment that requires him to stay abroad for at least five years. He is engaged and soon to be married. He is looking at this posting as an opportunity to earn additional income. He is keen to invest the surplus he will earn abroad after covering all major expenses. His friends suggest buying a house in Chennai, where he is likely to return after his international posting. His parents think he should accumulate the savings in safe instruments, such as bank deposits. His wife thinks they should buy some gold jewellery and invest the rest. What factors should Krish consider before making his decision?Krish is still in the early stages of his career. The additional income he will make from his overseas posting provides an opportunity to build wealth. However, the primary consideration should be the flexibility to use the assets he builds, depending on his needs. The objectives that should drive his choice are growth in value over time and liquidity to access the funds if and when needed. Buying a house in Chennai might be an attractive choice for the possible appreciation in value. However, if Krish’s posting is extended, or if he makes a choice to work elsewhere, or if his performance results in more international postings, the investment in a house might be of little use to him.
At a time when his career choices need flexibility, the house is an inflexible investment. Krish could make a smaller investment in a house, with the explicit intent to sell and release the funds if needed. He should desist from buying a dream house with his new wealth when it is not certain that he will live in that house. Buying gold would also be a limiting choice since it may turn out to be an illiquid investment and draw a high emotional price. The choice of asking his wife to liquidate jewellery might be expensive and tough to make. Bank deposits are a safe choice but do not provide growth in value. Krish may be better off choosing a mix of investments in the assets that are being proposed, keeping a small investment in a house that he may be ready to sell if needed, a portion in jewellery to keep the wife happy, and some amount in bank deposits and mutual funds, to ensure ready liquidity and higher flexibility.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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This story originally appeared on: India Times - Author:Faqs of Insurances
