GUIDE FOR BEGINNERS TO START INVEST

 Introduction :

Investing is the only way to achieve your financial goals.  you are saving for retirement  or purchase your own house or purchase a car or simple to look your money work for you , in all cases it is necessary to invest your money . Starting your investing journey on right foot is crucial .

This blog will help you to understand the basics of investing and also guide you  from where to start your invest. To start your invest you can follow the following steps :

1. Define your financial goals : Before jump to the world of investment you must be clear your reason for start to  investing your money. Take some time to define your financial goals . Once you define your specific financial goal  , then it is easy for you to make a strategy for your investment .

Your goal may be purchase a house or education purpose or you may start invest for your retirement  etc. Most important is you must define your financial goals.

Long term goal and short term goal : You should be clear in your mind that whether your goal is long term or short term.

Period of Long term goal is more than 5 years. It allow for more aggressive strategies which take advantage of market growth like stocks , mutual funds et.

In case of short term goal the period is 3 to 5 years which is require more liquid and safer investment like savings accounts , fixed deposit etc.

2. Build your financial foundation : Before start investing your money you must ensure that you have a stable financial base , like

Emergency fund : You must ensure that 3 to 6 month of your living expenses in a savings account for emergency purpose.

Pay off debt: If you have any debt like credit card debts or any high interest loans pay them off first , after that start your investing journey. The interest on these debts often outweighs the returns you will earn from investing.

3. Must have knowledge on investment types : Before start investing your money you must have knowledge of investment types. To achieve your financial goals you must educate yourself regarding investment types. There are several types of investment to consider , each has their own risks and returns  . I am discussing some followings options for start investing for beginners :

i)                 Stocks :  Investing in stocks is top most option for investing for beginners. When you buy a stock that means you are purchasing a share of ownership of that company. Stocks can give you high potential return but it has also risk due to market fluctuation.

ii)               Bonds :  Investing in a Bond is also good option for beginners. When you buy a bond that means you give loan to the company or a Government in exchange of interest payment over time. Bonds are generally safer that stocks but it has also lower return comparison to stocks.

iii)            Mutual Funds and ETFs : When you invest in mutual fund your investment will be diversified. Mutual funds are collection of stock, bonds and other assets which diversify your investment without picking individual stocks.

For example If you invest RS. 500 per month in mutual fund for 15 years and assume that return will be 12% , then after 15 years your investment is Rs. 90,000 and your return will be RS. 2,52,288 (approx.).

ETFs is similar to mutual fund but it is traded in stock exchange . It is good option for beginners because of low cost diversification.

iv)            Index Funds : These are a one type of mutual fund or ETF . It is popular with beginners because they offer broad market exposure at low cost.

v)               Real Estate : Invest in Real Estate is also good option for beginners. It offers tangible asset which provide passive income and long term appreciation .

4. Start with a retirement account : As a beginner you start your investing with a retirement account.

5. Diversify your investment : As the saying goes “ Don’t put your eggs in one basket “ that means don’t put your all investing in one asset  , you invest your money in different asset types (like bonds , real estate , stocks etc.) which minimize your risk . If one asset is not performing well other one helps to recover that loss . So , always diversify your investment.

6. Low Cost Investing platforms :   It is good for beginners to choose low cost investing platforms , otherwise high cost can eat your returns. There are many apps that allow you to start invest in a  minimal cost.  

7 Long term mindset :  if you want to achieve your financial goals and build your wealth then you must have a  long term mindset. Most of the new investors buying stocks when they think that price is low and sell those stocks when they believe that price is high. This strategy leads to poor decision making and losses. Market can be volatile in short time but then tend to rise over time. So, focusing on long term is the key to create your wealth.

8. Monitor your investment :  It is important to monitor your investment  occasionally ,  and don’t be panic because if you diversify your investment and invest for long time , fluctuations are normal.

 Conclusion : Investing is the most effective way to build your wealth. By following the abovementioned steps you can achieve your financial goals and create your wealth. But the most important thing is you should be start to invest  , even small steps today can make a big difference in future.