We always have to make decisions that define our fate. These decisions should be made ideally by wise choices but many a times we choose our alternatives by compulsion or worst by leaving it to chance. The same is true for the investments.

We do investment to fulfil our short-term and long-term goals ranging from buying a house, marriage, children’s education, buying a car to secure our retirement and to achieve financial security. Hence, it is of paramount importance that we make our investment with utmost care, prudence, with due research and by making a wise choice rather than the random picks or following a bandwagon.

The Investment Choice is not only about selecting the right mix from various investment alternatives, but it also includes the decision regarding the amount to be invested, the time horizon and the frequency of investment (regular and/or lump sum). In the era where one is exposed to plethora of information and investment avenues, one can surely feel perplexed and can make mistakes in their choice of investments.

So, how to make these wise choices? The following pointers can act as a quick guide.

1) Choice between and among Asset Classes: Asset allocation involves dividing your investment among various asset classes. The traditional mix has been equity, fixed income securities and gold. This mix today has become more complex with evolution of new asset classes like commodity, international equity, currency, real estate, derivatives arts, collectibles, alternative investments and likewise. The right asset allocation depends on various parameters which are further mentioned below.

2) Choice between Umbrella Investment vs Goal Based Investment: The umbrella investment has a single portfolio for all the life goals. But it is dangerous to have a single portfolio as any downfall can jeopardize the most important goals too. One needs to understand that there are no universal plans which fit to everyone. The choice of investment should depend on individual goals, its importance, time horizon, unique circumstances and on the risk appetite of the investors. And for each of these goals, there should be a separate portfolio.

3) Choice between Passive and Active Investment: A common puzzlement one encounters is the choice of passive and active investment. Passive Investments, on one extreme are the strategies that mimic the broader benchmarks. In case of equities, the passive instruments are equity index funds and exchange traded funds. The active Investments, on the other extreme, are the strategies that involves timing the investments and selecting the right investment which require specific skill sets. Again, these two strategies can be used in synchronisation. If one wants to opt for active investment he can either hire experts or can act by himself. Or if one does not possess the skills, time and energy, he could go for the passive investments.

4) Choice between Direct and Pooled Investment: The fantasy among some investors always have been to become overnight rich by investing directly into equity stocks. On most occasions, these investors end up on the losing side as either they invest in the penny stocks or the stocks, they have little knowledge about, or they lack the skill sets to choose the right sector and stocks. That does not mean, the direct equity is not a good investment. It is indeed, if invested with proper research or with expert advice, for a reasonable time period with patience and required discipline. However, many investors now are preferring the pooled investment vehicle, the mutual funds. Today mutual funds are providing wide range of products across asset classes - equity, debt, gold, hybrid, for various motives – capital growth, capital protections, regular income, tax planning and with several investment options – SIPs, lumpsum, STPs, switches and SWPs. Depending on their return and risk appetite, one can choose among these mutual fund plans, of course with or without help of financial planners.

5) Choices among emergency funds: Today, we are aware of the need for emergency funds (that is required to meet at least 3-6 months household expenses) when faced with bad weather. However, still one restricts oneself to saving accounts and fixed deposits for these emergency funds. But one can also opt for liquid mutual funds, arbitrage funds and even in short term debt funds to fetch better returns.

6) Choice of Portfolio Insurance: In an attempt to reduce the unsystematic risks (risk specific to particular sectors), many investors diversify their portfolio which is indeed a good strategy. However, the over diversification in turn increases the risks and reduces the return. The other strategy employed by few investors is using derivatives to reduce the systematic or the market risks. This choice is effective, but if implemented without the required knowledge, it can even erode your core portfolio.

So, the problem of ‘the paradox of choice’ (which means too many choices rather than giving happiness, give the anxiety and stress) can be addressed by streamlining our thinking to rationality to make a proper choice.