Retail investors need to keep their investment portfolios diversified and maintain a balance between short-term and long-term requirements.
Investors should avoid putting all their financial resources in the stock market, fixed deposits, property or other illiquid assets.
Generally, the traditional safe-investment avenues are bank deposits, real estate, gold and stock market investments, with each contributing to some extent in a balanced portfolio.
Maintaining a balanced allocation in gold, bank deposits, bonds, stocks and real estate is not an easy task and needs the advise of expert financial consultants.
Allocating a portion of the monthly savings budget for each asset in the portfolio can build a strong body of investment, which a person can fall back on when they retire. People save for retirement, tax savings, a home and children's education.
And each these purposes require a different strategy.
"People who have surplus resources for saving and investment have to maintain a wide spread portfolio consisting of bank deposits, which are liquid and offer assured returns. Investment in gold, real estate, insurance and jewellery is advisable, if there are enough resources to build up a strong portfolio of investment with minimum risk," said Danish Hussein, a financial consultant from a financial institute based in DIFC.
In an economic downturn, a certain amount of liquid cash that can meet the routine requirements for three months – rent, loan repayments and children's education – needs to be kept as hard cash or bank deposits. In such uncertain times, people should maintain a balance between their immediate requirements and future cash requirements.
Investment in gold jewellery is an age old practice, as the yellow metal is a good hedge against inflation.
"Investment in gold jewellery is good but now-a-days more people are looking at investments in gold coins and gold bars, which have good resale value even after long periods of time," said Sajith Kumar K P, Chief Executive Officer and Director, JRG Metals and Commodities, DMCC. Gold is also useful for its ornamental value.
Traditional portfolios of middle-class investors include government bonds and treasury bonds that offer guaranteed and secure returns. While investment in government bonds is done in small amounts, the instrument offers guaranteed returns. Unlike real estate or stock market investment, which depends on market performance, bonds are ideal investments in uncertain times. These investments are safe in government hands – it is used to build national infrastructure.
High return investments almost always turn out to be risky, which any investor needs to factor in and plan for. Medium-level investors are looking at investments that are low on risk and steady on income. Stock market investment is risky and needs to be placed through mutual funds to reduce the risk. Investors can also allocate funds into debts and equity funds.
Insurance is another important source of protection of assets and investments.
With rising healthcare cost, health or life insurance products with investment options are needed in today's world.
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