Jai is still in very early days of his career. The additional income he would make from his posting provides an opportunity to build some wealth. However, the primary consideration should be ensuring flexibility to use the assets he will build, depending on his need. The objectives that should drive his choice are growth in value over time and liquidity to access the funds if and when needed.
Buying a house in Delhi might be an attractive choice for the possible appreciation in value. However, if Jai’s posting is extended, or if he makes a choice to work elsewhere, or if his performance results in more international postings, the investment in the house might be of little use to him. At a time when his career choices need flexibility, the house is an inflexible investment. Jai could make a smaller investment in a house, with the explicit intent to sell and release the funds if needed. He should desist from buying a dream house with his new wealth when it is unknown if he would live in that house.
To buy gold would also be a limiting choice, since it may turn out to be an illiquid investment and draw a high emotional price. The choice of asking his wife to liquidate the jewellery might be expensive and tough to make. Bank deposits are a safe choice, but do not provide growth in value. Jai may be better off choosing a mix of investments in the assets that are being proposed, keeping a small investment in a house that he may be ready to sell if needed, a proportion in jewellery to keep the wife happy and some amount in bank deposits and mutual funds to ensure ready liquidity and higher flexibility.
(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
