Investments is a very broad term. The world of investments includes a variety of options: fixed deposits and recurring deposits, mutual funds, stocks, commodities like gold, currency trading, derivatives trading and so on and so forth. With the multiple options available with us, paying heed to investment tips in India is very important for you to know how you can pick investments and to know which investments suit you because not every investment is everyone’s cup of tea. The thing with investments is, it is unique for every investor.
Here are a few investment tips for beginners that can help you to pick from the various options:
Understand your investor profile:
This is extremely important to understand and is the first step to investment. Even the best investment tips will not help you if you cannot define yourself as an investor. There are few steps to it:
- What are My Financial Goals?
- For How Long Can I Stay Invested?
- How much money do I have?
- What is My Risk Tolerance?
Financial Goals: Before you decide how much to invest, you should know why you are investing and this is you will get to know if you know what your goals are. Higher education, marriage, starting a family, buying a house or car, retirement or simply to build a corpus. After you know why you do have to invest, you will know when you will need the money and how long
How to decide how much to invest?
Before you know how to invest money you need to know how much you can invest. Investments are volatile. Unless you go for FDs and RDs, in the short term, your value of investment might go down. Three things that determine your risk appetite is: how much money you have, how much money can you part with and may be your age. Your investable corpus is the fund that should be invested. Do not invest all you have so it all depends on what you can siphon off from your total funds and how much can you set aside.If you use all you and do not keep aside anything as buffer funds, you are playing with our risk appetite. What you invest should always be your surplus funds.
Risk appetite
How much risk can you take? Risk in the investment world means can you emotionally and financially withstand seeing your money go down in a short period of time and not have the tendency to redeem your investment? Knowing your risk appetite is one of the top tips for choosing investments. Once you decide if you can take more risk, medium or you want to avoid risk completely, it will be easy for you to pick investments.
Risk-wise categorisation:
Risky investments: Equity as a category is a risky category. Stocks are volatile and their prices move alot during a short term. However, if you stay patient and stay invested for a long term, which would mean at least 5-7 years, you will see results and better than the other traditional products in the market. So equities are riskier. Simiary equity mutual fund investments, which invest in stocks, are riskier.
Bonds and debt funds: Bonds, though sort of market linked but do give guaranteed returns to some extent. The returns will be moderate but guaranteed. Bonds are less risky as compared to stocks and debt mutual funds are less as compared to equity mutual funds.
Gold: Gold is considered as a safe haven against equities because mostly they move in opposite directions. However, for releasing optimum returns on gold too, you should invest for a long period of time. The risk in gold investments is lesser than equities.
Currency and derivatives trading: Such options have extremely high risk because the number of factors that impact these are more.Make sure you have spent enough time in the market and have enough knowledge before you go for such investments.
Diversify
At least within the regular options when you are picking a broader category between stocks and bonds, do not avoid a category completely. This is again one of the best investment tips. You may follow all the aforementioned tips but all of them will fail if you do not diversify and keep your money invested in only one asset. Say you have a very high-risk appetite but you invest everything in equities during dire circumstances you will lose all that you had invested. Diversification is the key to success in investments. If you have a high-risk appetite, keep more money in equities and less in bonds. This analysis goes for equity funds and debt funds as well.
Knowledge and research
There is no free lunch in the world and so is the case with returns. You cannot watch your money grow without zero efforts from your end. A bit of research and markets study from your end is required because it is extremely important to be an informed investor. This is one of the important investment tips for beginners who may not have in-depth knowledge. New age investment platforms provide investors with a transparent platform, with all the information that you need to know about a particular stock or fund and a lot of learning material for you to make an informed decision.
Do not invest on hearsay
Never invest in the basis of random advice you receive from friends, family or TV analysis. Your investment should be done after a careful study of your investment profile. An investment profile that works for your peers may not work for you. That is why we only have one Buffet or one Munger in the world. Copying someone else’s investment basket will never serve money its real purpose.
Final Words…
For you to truly learn how to invest money, it is important you go through these tips and implement them in reality. Making informed and learned investment decisions is key to watching your money grow. Know your investment profile, risk level, goals without copying anyone else’s investment basket and then invest your hard earned money.