How and Where to Invest Money in 2009!

The year 2008 has been a terrible year for investors the world over. And 2009 is not likely to be much better, either.

In the current turbulent times – and after a long time -- investors' focus is on 'safe' rather than 'maximum' returns. Simply because no one wants to burn one's finger in the highly-volatile stock markets, and even other 'high-return' investment avenues such as real estate, mutual funds and unit-linked insurance plans don't look that promising.

There is, however, no need to lose hope as every cloud has a silver lining, as the saying goes. In fact, you can even make the most of the current turmoil, just by making some sound investment decisions based on your own research and following your own instinct.

Here are some simple tips to help you plan your investments wisely and smartly:

Learn from past mistakes

Your own mistakes are said to be your best teacher. So why not take some valuable lessons from them too? Anyway, the financial crisis has left investors with many lessons to learn and if you have made any mistake, you can learn from that too. For instance, if you have been guided by greed in the Bull Run and are now repenting your indecisiveness to make hay while the sun shined, then it is better not to repeat the same mistake again.  

Understand well before investing

If you don't understand it, don't invest in it. This is what the world's greatest have been doing over the years. In fact, never invests in a business that doesn’t understand.    That just because something is complicated, doesn't mean it's worth your time and money. Thus, even if you listen to hundreds of financial experts, follow your own instinct while investing.

Make strategic long-term investments

At the current juncture, the fresh investments in equities and real estate should be aimed strategically to build long-term assets and achieve long-term goals.

Buying in a staggered way through the systematic investment pan (SIP) or systematic transfer plan (STP) route can help you in sailing through the volatility in equity markets. Try to accumulate fundamentally good stocks in your portfolio after doing a thorough research. Similarly, you can use the fall in property prices to add to your portfolio or to achieve the goal of buying a home.

Take advantage of falling interest rates

At this juncture; many would be looking at decent returns as well as safety of capital. The answer lies in fixed income instruments, particularly income funds.

Gold a good investment bet

Even in difficult times where all the other asset classes are under performing, gold has been able to maintain its sheen. Gold is one 'safe haven' where money is parked in difficult times.

Buying gold is also a good hedge for your portfolio of stocks and properties. Also, one can expect gold to be a great investment bet in 2009 if the US dollar remains under pressure.

This is because historically there is an established negative correlation between the US dollar and gold. Since US economy is expected to remain under pressure, we can expect gold to have a sustained rally going forward.

So far as investing is concerned, there are various ways to invest in gold apart from buying this precious metal in physical form. For instance, Exchange Traded Funds (ETFs) of gold mimic the movements of this metal on the international exchange and do not carry any problems of liquidity, purity and storage that physical form of investing does.

Diversify your portfolio

Diversification of portfolio across asset classes and instruments is the key factor to earn optimum returns on investments with minimum risk.

The reason for the relatively poor performance of portfolios of individual investors even in greatest of bull runs has been lots of variation in market breadth. Different industries have participated at different points of time in taking the markets up.

There have been periods running into several months when the entire rally has been led by a handful of large, frontline stocks.

On other occasions, mid caps have generated remarkable returns and made large caps look pale in comparison. So, it becomes imperative to diversify your portfolio across sectors and market capitalization.

Control both fear and greed

Many investors have been losing money in stock markets due to their inability to control greed and fear. In a bull market, the lure of quick wealth is difficult to resist.   Greed augments when investors hear stories of fabulous returns being made in the stock market in a short period of time.

This leads them to speculate, buy shares of unknown companies or creates heavy positions in the futures segment without really understanding the risks involved.   Instead of creating wealth, these investors burn their fingers very badly moment the sentiment in the market reverses. In a bear market, investors panic and sell their shares at rock bottom prices.

Look for new avenues and markets

If you have had enough in stocks, mutual funds, Ulips, real estate and the like, or think that it is not the right time to invest in them, then look for some other avenues of investment or try some new markets where you think your investments will be relatively safe in the current turmoil.

For instance, you can opt for a PPF scheme if you don't have one or put some money in the insurance companies' guaranteed-return plans which many of them have launched recently.

They might not give you handsome returns, but your money will at least be safe. And what else do you need in the current downturn?