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I am 38-year old. I have an extremely conservative stance on investing in financial markets and prefer investments with fixed returns. I have invested 90% of my corpus in fixed deposits and 10% in equity via MFs. My strategy for investing has always been a DIY approach as I believe financial advisors are mere insurance and mutual fund distributors who are driven by their commissions that eat into your gains. With inflation soaring and a low-interest-rate environment, what investment strategy would work best to help me reach my goal of financial freedom?

-Ashish

There are quite a few investors who have zero appetite for financial risks, due to which fixed-income investments become their go-to strategy. What’s great is that Ashish is aware of his risk capacity and is trying to do his best to save for a financially independent future. His chosen strategy may have worked for him in the late 1990s when interest rates on deposits stood at approximately 10% p.a1.

Unfortunately, today we find ourselves amidst an environment where interest rates on deposits are as low as 4.5 to 5% p.a, inflation is at an all-time high, and markets are volatile due to the after-effects of a pandemic and the ongoing Russia-Ukraine war. Continuing to invest with this conservative strategy may not be in Ashish’s best interest. His gains post taxes and inflation will be insufficient to meet any set financial goals.

My advice to you would be to place a little trust in a fiduciary who will put your interest first. Choosing a SEBI registered investment advisor is a safe bet as they are governed by regulations that safeguard an investor’s interest. Yes, financial advisors do offer advice on insurance products and Mutual Fund investments, but the choice to go ahead with the investment will always be your call. Furthermore, this is merely a tiny part of what an advisor truly does.

Their primary focus will be to understand your holistic equation with money; this would entail understanding your present and future income earning capabilities, breaking down your monthly expenses, managing the debts you incurred, and noting down your life goals. Based on these, they will chalk out a financial strategy that ensures you clear your debts, create a corpus to cushion the blow during unforeseen critical financial needs and help you meet your financial goals without altering your lifestyle tremendously. An advisor’s actual job lies in ensuring you stick to your financial plan and manage your emotions to avoid any knee-jerk reactions that market volatility may cause.

To reach any financial goals you may have set, you will need to broaden the scope of your investments beyond fixed deposits. There are a variety of low-risk asset classes like debt funds, government bonds, etc., that would be an excellent way to safely diversify your assets and gain inflation-beating returns over the long run. Or rather associate with an ethical financial advisor who would help you to diagnose your current risk, risk capacity, and risk tolerance and recommend an investment that is right for you to achieve your financial goals.

Query answered by Tarun Birani, founder and CEO TBNG Capital Advisors. 

(Send your queries to mintmoney@livemint.com)

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