In the early part of this decade, taking a home loan and putting the money in real estate was considered a lucrative avenue of investment, considering the double digit returns that real estate was delivering to investors and the tax savings on home loans.

However, things have changed since. Demonetization and a structural slowdown on account of massive supply has deadened the real estate market. It has become hard for many to pay EMIs on time. Worse, it’s even harder to sell property for a healthy profit nowadays.

All this to say, please be prudent when you invest in real estate or any other avenue that demands similar financial commitments. If your real estate investments account for more than 70% of your total investments, you need to make some changes. Furthermore, as you approach retirement age, bring down your exposure to real estate to about 25% of all investments – it gets more and more difficult to maintain these physical investments as you age.

Do not underestimate the importance of having cash on hand at all times. The inability to liquidate investments at the best price is something that must always be factored into a dynamic and intelligent investment strategy.

The way to solve this liquidity riddle is to always have an emergency fund equal to at least six months of expenses. If not, you may be forced to sell your long-term investments to pay for daily needs. Once you have this in place, the rest of the money can be invested in other places. The best financial plans always keep some of your investments in liquid vehicles.

The bottom line: Yes, returns and risk will remain the enduring pillars of investment decision-making process, but they have to be looked at in conjunction with smart strategies that protect liquidity.

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