What is Core & Satellite strategy?

When it comes to investment, every penny matters, just like a pitcher fills drop by drop. Similarly, wealth is built through incremental investments. The financial year 2023-24 is coming to an end, and people are eagerly awaiting their bonuses. Annual bonuses will start being distributed from April-May. Some people squander the bonus amount, while others spend it on shopping. But have you ever thought about the correct way to utilise a bonus? Let’s find out.

Bonuses are a reward for employees that go beyond their monthly salary. Generally, bonuses are given by companies based on good performance. It’s essential to invest to make money from bonuses, meaning to earn returns. Before investing, it’s crucial to consider a few things.

Before investing your bonus, you should know about your short-term or long-term investment goals. Saving money for a child’s education, retirement, or a down payment on a house is considered a long-term goal. On the other hand, planning for vacations, skill development, or buying a car or bike could be short-term goals. Setting financial goals helps in making investment-related decisions.

There’s no guarantee of fixed returns in investments. Market conditions may lead to fluctuations. Therefore, it’s essential to consider your financial situation and risk-taking capacity before investing.

Instead of investing the entire bonus amount in a single asset, allocate it across different asset classes like shares, bonds, real estate, and gold. For example, you can invest 50% in shares, 30% in bonds, and 10% each in real estate and gold. This is called diversification, which reduces investment risk.

There are many options available for investment such as stocks, mutual funds, Exchange-Traded Funds (ETFs), real estate, and gold. Research each investment option and compare their performance history, fees, risks, and returns.

How to make the right use of the bonus amount? Here are some suggestions. If you have any loans, such as credit card debt or personal loans with high-interest rates, you can use the bonus amount to pay off the debt. This can save a significant amount of interest and improve your credit score. Credit card companies charge hefty interest rates after the interest-free period, so the return on investment might not match the credit card’s interest rate. Therefore, it’s wise to use the bonus money to pay off high-interest debts.

Before investing, having an emergency fund is essential to avoid financial difficulties during tough times like medical emergencies or job loss. If you don’t have an emergency fund, you can allocate a portion of the bonus amount to create one. An emergency fund should ideally cover at least six months’ worth of essential expenses.

If your long-term goals include buying a house, retirement planning, or wealth creation, use your bonus to fulfil these goals. You can invest your bonus in mutual funds to easily achieve your financial goals.

Investors with a long-term investment mindset and risk tolerance can invest in shares or equity mutual funds. Investing in shares carries higher risk but also offers the potential for higher returns. If you can research and select shares of companies with strong fundamentals and growth prospects, you can invest your bonus in them. Shares are suitable for investors who have a good understanding of the market.

People unfamiliar with the market can enter the market through mutual funds. Fund managers manage your money in mutual funds. Equity mutual funds can offer returns of 10 to 12% in the long term, while debt mutual funds can provide annual returns of 6 to 8%. Returns in the market are not fixed, so they can fluctuate.

After investing the bonus money, you shouldn’t sit idle but keep a continuous eye on your investments. Consult a financial advisor to make the right decision according to your financial situation. After fulfilling financial priorities, you can use some portion of the bonus amount for enjoyment or buying new gadgets.