As the equity markets are looking precarious, and debt markets are expecting rate hikes, investors need to make smart choices now to make their financial portfolio earn higher long-term returns.

Invest in mutual funds

Professional fund managers manage mutual funds, and have the potential to make you wealthy because of its ability to diversify risk. A mutual fund, unlike individual equities, invests in a portfolio of 50-60 stocks, sometimes even more. The companies are then separated into multiple categories with a negative correlation, which means that even if one sector underperforms, outperformance in other sectors can allow mutual fund investors to obtain excellent overall returns.

Stop timing the market

When the stock market becomes choppy, it’s natural to strive to “save” money by pulling back. But that is the worst decision, and it will end up costing investors a lot of money. Consider a down market as a purchasing opportunity rather than allowing your nerves to get the best of you. At the absolute least, don’t panic and withdraw your funds from your assets.

Harvest long-term capital gains in equity

Long-term capital gains of Rs 1 lakh from equity and equity mutual funds are tax-free in a financial year under Section 112A. This is why tax experts recommend that investors harvest their earnings once a year. You can lower your tax obligation by recording long-term capital gains every year rather than amassing them over several years and booking them all at once. An investor’s total tax liability can be reduced in this manner.

Beat the market with focused investment

The information technology (IT), financials, and construction-related areas appear to have promising futures in 2022. Due to continued FII selling, financial stock valuations, particularly those of top banks, remain appealing. Accelerating digitalisation has generated a multi-year upcycle in IT. Although IT values are expensive, earnings visibility is excellent. Low borrowing rates are causing a construction boom, which will help all construction equities. Book some profits and move some money to fixed income as a precautionary step. Gold ETFs are also a smart way to protect against rising prices and a weakening rupee.

Returns are expected to be modest in 2022. So, first, looking for segments and businesses that can outperform the market, and second, investing carefully over time.

Learn about crypto

Do not invest all of your money into cryptocurrencies, first understand them and how they function. Learn from individuals who profit from cryptocurrency. This is true in any situation, but it is especially critical in a new, largely uncontrolled, and developing space. And, regardless of the asset, never invest more than you can afford to lose.

Monitor your accounts

To safeguard yourself and your assets, first understand the location of all of your accounts, including banking, retirement, student loans, and credit cards. Then, enable multi-factor authentication on all of your accounts to add an extra layer of protection.

If you have no plans to seek credit in the near future, you can set up credit report monitoring or freeze your credit accounts. It is a great plan to use a password manager.

The writer is CEO & founder, Finway FSC