Answer These Questions to Know Your Investment Capacity

To comprehend where one should invest, one has to unite two cruxes that are, life goals and financial goals
  • BY Jaspreet Kaur

    Feature Writer, BusinessEx

  • |
  • Aug 12,2020
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  • 16 Mins Read

In this crisis, people try to understand the business ecosystem. They look upon their investment, savings and economy. They try to ascertain how investment and different asset classes can be beneficial for them. In essence, there are two types of investors: active investors and passive investors. 

Active Investors- They actively infuse money into assets and other related things. 

Passive Investors- They are categorized into the operator and non-operator. 

The only difference in investment is that either an individual is holding investment himself or someone else is holding for him. 

"The investors are divided into three types. There are 3Fs of the investors: Firm investors, Flexible investors and Freestyle investors," Gaurav Marya, Chairman at Franchise India Holdings, told BusinessEx. 

The three types of investors are elaborately explained below. 

1. Firm Investors

These are normal people that are well researched and asset-focussed. They do not do any other thing. They deeply understand a domain as they are coming from that domain. They grow after investing in a particular asset. 

The people, who invest in equity for several years, tend to infuse money in that particular asset only. While people, who invest in property, are likely to invest in property only. If they are given other options, they will not take them as they would not know how to build money in that particular domain. 

2. Flexible Investors

At present, this asset class is growing. Professionals are classified into this category and they diversify their risk as well as an investment class. They will put money into some money in financial class, property, and other asset classes. 

3. Freestyle Investors 

They are impulsive and high risk-takers. They are basically the first movers. Sometimes, they create a lot of wealth because of their first-mover advantage. 

What Kind of Investment You Should Do?

To comprehend where one should invest, one has to unite two cruxes that are, life goals and financial goals. Life goals and financial goals are different unless you marry your life goals with financial goals, then real results will only come. 

According to Benjamin Franklin, "Investment is a knowledge which pays the best interest. Investment in knowledge is the best interest when it comes to investing nothing will pay off more than educating yourself." 

For a better understanding of one's capacity to invest, one has to ask these questions from oneself. 

  1. It is important to introspect what stage an individual is in his life. Thus, ask what stage you are in your life currently and in the next ten years? Are your life goals and financial goals going to marry? Both goals necessarily marry each other.
  2. What is your cash flow requirement in the next ten years? Which big moments are coming and where do you need cash? 
  3. What are your current savings and liabilities? How is it balanced between these two?
  4. Evaluate your current investment and understand what are these investments asking for?
  5. What is your fallback capital? What are your savings? 

 Fallback capital means that any business that has not done well or investment that has not borne anticipated results. A lot of industrialists have bounties of assets but those assets are not able to liquidate at the time, when they are needed. Thus, businesses become dry and they require more money. 

6. What will you bring outside your capital?

When an individual tries to do the business, he can focus on the capital he is employing. Keeping the capital aside, he has to introspect what is the second most important thing or capital he will bring to that business. Sometimes, it is an asset or an experience.

7. What is the second most important skill after the capital into your business?

8. How do you define your financial goals?  

These questions will give a perspective and help understand your investment potential.

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