Thinking of investing in equity stocks on Diwali in the hope of attracting good luck it does not always work. Instead, analyse and re-organise your portfolio during the festive period and cultivate good financial habits.
Diwali is the most popular festival in India triggering wide range of emotions in the life of Indians. It is considered the most auspicious time of the year. It evokes every victory of good over evil, celebration of wealth and is primarily celebrated as a festival of lights. Many communities observe it as the best time for the start of new business calendar.
Evocative as it is for festivities and hope, it is an opportune time for taking stock of investments and your strategies. If you have not started investing yet this is the time best suited for ideating the hard way about building your financial strategy. For persons who have been following the advice of others in the matters of investment.
Auspiciousness of the festive period is the best period for focussing on long-term wealth creation. Make a decision to avoid loan as they mean more repayments with less surplus to invest.
Avoid Loans
As people are more likely to spend lavishly during the festivities of Diwali the banks and other financial institutions start offering attractive loan offers for consumer durables and other stuff. The lure of availing the cheaper loans make people end up buying things they actually cannot afford. For example, you buy an upgraded version of your car due to the availability of cheaper loan thus increasing your repayments.
Diwali is all for spending and enjoying the festive mood but it is also the occasion for worshipping and respecting Lakshmi, the Goddess of Wealth. However, wealth creation cannot be done by spending more than you earn and availing loans for purchasing consumer goods which is akin to disrespecting the Goddess. It does not help in adding your wealth but adds to your financial burdens.
Starting Investing Now: Build Emergency Fund
One can invest anytime for building your portfolio but people are less likely to invest during Diwali as most of their surplus cash is spent on festivities. If you are just starting you are starting your investment portfolio the best time to do so is right now. However, it is imperative that you do two very important things:
(1) Use your cash and savings to build a corpus for meeting emergencies for at the minimum 12 months as a hedge against loss of your income source .
(2) Get a comprehensive health insurance policy to cover your hospitalization expenses.
After this has been done, it is time that you strategize about long-term wealth creation. Many a time we see stock recommendations and market benchmark targets being given for Diwali but they rarely work. And, even buying on Diwali day does not deliver impressive returns a year later. Starting an investment journey is fraught with uncertainty. At the beginning, the best strategy is to go for good quality large cap stocks. These are the companies that have established their competitiveness in their industry and increasing market share. Most important you should mentally prepare yourself for staying invested for at least 10 years. In case you cannot make up your mind regarding which stock to buy you can opt for well-known large cap mutual funds with track record of delivering consistent returns.
Income Impacted by COVID-19: Stop SIPs and Finish your Repayments
If your income was impacted hard by the COVID-19 it is high probability you would be rolling back your investments. The is no denying the fact that in times like this you have to focus on cash flow generation. It is very important that you do not miss out on meeting your debt obligations. Interest compounded on debt obligations will be costly. It is time for taking stock of your financial objectives and spends.
You should stop your regular systematic investments only if the cash flow during the month is not adequate enough to meet debt in the current month or in the coming months. It is important that you try your best to save as much as you can during such times. It is also imperative that you continue to add to your emergency fund. Meanwhile it should not be forgotten that you continue to invest a bit for securing your future.
However, you should not make this investment as a tool to pay back your debts. Rather the investments should be so tailored long-term in equity stocks or funds for getting returns better than the prevailing inflation. However hard you might find repaying your loan payments, getting out of your existing investments is never a good idea. And, after you have created an emergency fund, you must start small regular long-term investments.
Do not Buy a Home or Consumer Durables if you don’t need them
During festive period of Diwali, you are bombarded with offers on consumer goods with attractive loan offers. Awash with attractive home offers, the marketing gimmicks are designed to lure you into buying even when you do not need a house. It is never a good decision to buy a home or a car when you do not need them. This is bad financial behavior which would definitely put your financial well-being at risk.
As the festival period approaches, there are many stock recommendations marketed under names Diwali stock picks. Auspicious as festival period is, it does not make a sound investment strategy. Asset allocation is very important for structuring your long-term investments. Right asset allocation is way more important than picking the right stock. You can use a part of Diwali bonus for investing and the rest you use for festival spending.
Your investing must be targeted towards meeting future financial objectives. In order to create wealth, building a long-term strategy is must with periodic cleaning out of your portfolio with quality stocks, which are considered the best bets for returning excellent returns. Equity investments must be left untouched for at least 7 years. For building your retirement corpus, there is no better option than to chalk out a long-term investment plant.
On the auspicious occasion of this year’s Diwali, you must decide to focus on devising the right strategy rather than picking the right investment product. However, it is also equally important that you take stock of the risks involved in following through with your strategy. And, you must never forget to protect the financial well-being of your family before ahead with your investment plan.
Disclaimer: The views and investment tips expressed here are for educational purposes only and should not be considered as a call for investment. Bussinessfab.com advises users to consult a certified investment advisor before taking any investment decision.