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Three Common Mistakes To Avoid When Investing For Your Child

Adhil Shetty

When deciding to grow your family or making your child financially independent, thinking long-term is essential. This means that you not only need to set aside savings for your child, but also invest a part of the same to gain high returns over time. While it is important to have a cash reserve at hand to cater to financial emergencies, prudent investments will help you attain financial goals while combating rising education, medical, and other costs of living. You need not look for a professional to teach you the basics of investing. This Children’s Day, ace this task yourself by doing a little homework about investments and being cautious to avoid these common yet sizeable mistakes.

Ignoring Inflation And Not Setting Financial goals

With inflation, the price of that engineering course or root canal is bound to get costlier by the time your child comes of age. It is only wise that you plan keeping this in mind. With written down and soundly planned financial goals, you are more likely to stay focused. Plan your child’s milestones and set aside funds or make investments to gain the required resources at the right time. Additionally, factor in the cost of living as it is bound to affect your savings, and thereby your investments. It would be wise to list out each goals, assess the money required to fulfil them, and invest accordingly.

Opting For Savings Schemes That Offer Low Returns

A rise in education cost/inflation means that you would have to invest your money in instruments that yield good returns. Do not just rely on conventional child insurance plan or a money back plans. One mistake people often commit is investing in avenues that are not easy to liquidate during urgent needs. It is thus important to identify right investment option that can help you in accomplishing your financial goals. Consider the returns by less risky debt mutual funds, company fixed deposits that can yield up to 9% earnings or other instruments that are bound to compound your wealth, rather than simply storing it.

Postponing Investments And Not Planning Financial Goals

While you may have 20 years until you need the funds for your daughter’s education, it would be wise to inculcate a regular investing habit at the earliest. Having time on your side can come to your aid when you do not want to increase the proportion of risk in your investment portfolio. With enough time to make up for any losses, you are already one step closer to achieving your goal. So, rather than waiting for a suitable time, be it after that international holiday or after the markets recover, start now. Cut down on unwanted expenses and research investment schemes before allocating your finances towards them. What’s more, you can end up saving up and earning more to address not just your children’s needs but your own desires post retirement too!

Armed with the knowledge of what you must avoid when investing for your kids, following the ideal financial path may just become more effortless and convenient.

The writer is CEO, BankBazaar.

BankBazaar.com is a leading online marketplace in India that helps consumers compare and apply for credit card, personal loan, home loan, car loan, and insurance.