- Date : 23/12/2020
- Read: 12 mins
Set your investment goals, assess your risk tolerance, and start investing after following the tips given below to create funds to meet all your goals.
The right investment choices can pave the road for the life of ease that you wish to live. But when you think of investing, several doubts can arise. Is it the right time to start investing? Where to invest your hard-earned money? How to invest in the share market and navigate its volatilities?
Such questions can leave you uncertain about your investment strategy.
However, investing need not be so mysterious and complicated. Here are some simple investment tips for beginners that can stop you from faltering when you start your investment journey. Follow them and secure your financial future.
1. Define your investment goals
Chalk out your short, medium, and long-term financial goals as a stepping stone towards your investment path. Assign a monetary value to each goal and a time-frame. Your short-term goal can be a vacation abroad. A medium-term objective could be buying property. Long-term goals typically involve funding your children’s higher studies or building a retirement corpus.
Different investment schemes and strategies suit different goals. For example, if you want to safeguard your capital and draw some income from it, conservative investment plans might work best for you. But if you wish to build enough wealth to maintain your lifestyle after retirement, you can turn to the capital market’s higher return potential. In short, you need to set a final objective that’s consistent with the capital you can invest and the earnings you expect.
Moreover, what you are investing for should decide the duration for which you stay invested. Knowing this helps you figure out how to invest and amass funds within the time-frame you set to achieve your target. A short-term goal would need an investment avenue that offers high liquidity. A long-term goal might require locking in your capital until such time you need the money, allowing it to grow.
2. Assess your risk-taking capacity
High-risk investment instruments offer the potential for the best returns. But their performance depends on market conditions. Hence, before committing to any investment plan, you must work out how much loss, if any, you can withstand.
As a young professional at the beginning of your career, you might have fewer liabilities. You can then handle the high risk linked with high-reward stocks. But if you are nearing retirement, or saving for a near-term goal, you may want more stable investments.
Furthermore, the longer your time horizon, the more risk you might be able to afford. If you can stay invested for ten years or more, you can lean heavily on equities. The longer duration will help you ride out market volatilities. However, if you are uncomfortable with any potential fall in your account balance, you can choose a balanced portfolio with stocks, bonds, and government securities.
However, if you have fewer than five years to realise your goals, exposure to the stock market might not be the best strategy. And if you need funds within a couple of years, cash alternatives (say, bank deposits) might work best for you. So, always compare the various investment schemes to determine what level of risk each presents. Then select one that gives the most benefits while posing a bearable level of risk.
3. Stay regular, even if you invest small
You need not overstretch your resources to buy the right investment plans. A common rule of the thumb is to save 10%–15% of your monthly income. However, if you cannot set aside that much at the beginning, start small and increase the amount gradually. But remain consistent. Even if you need a huge sum, you can meet the demand through small but regular investments.
4. Harness the power of compounding
Albert Einstein famously hailed compound interest as “the eighth wonder of the world” and “the most powerful force in the universe.” It allows the returns on your investment to earn further interest, growing your capital. The enhanced capital attracts additional interest, and the cycle continues. And the longer you let your investment grow, the higher becomes its value.
5. Start as early as possible
If you are wondering when you should start investing, the answer is: as soon as you start earning. At a young age, you can afford a longer holding time before you need to cash out your investments. You can thus effectively use the power of compounding. Moreover, even if something goes wrong, you have age on your side. You can course-correct and get back on track to growing your wealth, without risking your long-term goals. So, you can explore more investment opportunities when you start early.
6. Get rid of costly debts
Before you start investing, reduce or repay any expensive debts you might have. It will help you save money on your interest outgo. Credit card dues, personal loans, student loans, and other such high-interest debts can eat up your earnings. You are then left with fewer funds to invest.
What’s more, the rates of interest on loans are higher than the returns from most investment instruments. In other words, the money saved on loans is equivalent to investing at a return rate equaling the loan interest rate. So, if you have surplus fund lying unused, or receive a windfall or bonus, make sure that you pay off your outstanding dues first.
7. Take care of the basics
Before investing your money, you need to cover your everyday finances. It involves building an emergency fund. Financial experts advise maintaining an emergency fund that can meet 3–6 months’ worth of expenses. For instance, if your monthly expenditure amounts to Rs 50,000, including groceries, utilities, and other non-discretionary spends, set aside Rs 1.5 lakh to Rs 3 lakh for emergencies.
This fund can cover unforeseen expenses, or see you through periods of reduced income. You won’t have to liquidate your savings.
8. Study and understand the stock market
While traditional investment tools can give you decent returns, real growth in wealth needs some exposure to stocks. As American entrepreneur Robert G Allen aptly summarised, “How many millionaires do you know who have become wealthy by investing in savings accounts?” Historically, the capital market has given positive returns with long-term investments, with typically 10-15 year terms irrespective of down cycles.
According to Bloomberg Quint, Nifty, the benchmark of India’s National Stock Exchange, produced a staggering 119.92% positive return over the past ten years. During the same period of time, Sensex, or the Bombay Stock Exchange, yielded 124.96% returns.
However, you should research every investment channel before you buy. If you are planning to dive into the stock market, invest in bonds, or buy mutual funds, read up on the companies. Learn about their revenues, account balances, and past performances. For example, if a company, regardless of its reputation, is showing lower cash balances and falling revenues, it will be wiser not to buy its shares.
Some of the metrics on stocks you can look out for include:
- Price-to-earnings (P/E) ratios
- Earnings per share (EPS)
- Return on equity (ROE)
- Various tools are available online to help you research potential investments. Spend some time on research before you invest your money and brush up your knowledge.
Also, beginners must get a broad understanding of how the stock market functions. Most investment vehicles depend on market metrics and methods. When you know the fundamentals of the capital market, you can survive slowdowns better. Try to become aware of share market parameters such as:
- Order types
- Investment account categories
- Methods of stock selection
All this information will help you assess risks and make the right selections.
9. Keep insurance separate from investment
Investors often choose life insurance savings plans as investment tools. However, many fail to understand the underlying costs.
Apart from mortality charges for your life cover, the insurance companies also charge operational overheads, agents’ commissions, and many other fees. The portion of your premium ultimately invested can be relatively low. As a result, the returns are rarely inflation-adjusted.
In contrast, since your entire premium is not going into securing your life cover, you can end up being underinsured. So, every financial advisor recommends separating your investment and insurance needs.
Term plans offer sizeable life covers – enough to cover your family’s living costs – at very affordable premiums. For investments, you can choose from the many investment options available in India. Aggressive investors can go for mutual funds, while the more conservative can subscribe to a Public Provident Fund (PPF) or open a bank fixed deposit (FD), among other choices.
10. Avoid putting all your eggs in one basket
Savvy investors prefer to diversify their investment portfolio to manage risks. Diversification means putting your money in different asset classes.
What can go wrong if you put all your funds into one company’s shares? If the company fails, you will have no fallback to cushion the loss. But when you have other holdings, gains from other assets can offset the negative returns from some stocks.
Study the different asset classes available. Then invest across the various types to weather storms better. Consider investment avenues like real estate and commodities as well. You can also invest in funds that include many stocks from different businesses and a mixed bag of interest-paying bonds.
11. Choose broad-based investments at the start
For your initial investments in the capital market, go for broad-based mutual funds. Such funds pool money from several investors and buy various securities. It is thus an uncomplicated route to acquiring different asset classes.
12. Do not neglect your retirement funds
When you are young, you might feel you need not bother about a time when your paycheck stops. But often, while meeting your current financial needs, it is all too easy to forget to address your future monetary independence.
Take into account the time value of money. The corpus you have today may not be enough to pay for all your post-retirement needs. Considering inflation, the rising cost of healthcare, and the medical complications old age often brings, you need to start planning today.
Many retirement plans also offer tax benefits on the amount of money you invest. Reducing your tax burden is another incentive to look into retirement funds when you start earning.
13. Concentrate on your savings percentage
Focus on saving enough, not on your portfolio’s short-term performance. You cannot control market conditions. But you can control the amount of money you save. By maintaining or increasing your savings rate over a viable time frame, you stand to increase your profits.
14. Take advantage of rupee cost averaging
The celebrated investor Warren Buffett put forward one of the best investing tips for beginners: “Be fearful when others are greedy. Be greedy when others are fearful.”
When investors turn sceptical about a company’s prospects, its stock prices plummet. But when they feel confident about a company’s performance, its stocks soar. Often speculations, rumours, and emotions lead to short-term fluctuations in stock prices.
However, it is wise not to be swayed by fear of losses when it comes to investing. Panic selling, on seeing your investments underperform, often leads to more losses.
Instead, you should take advantage of a down market to buy stocks at low prices. You can then acquire more shares at the same amount you spend towards your regular share market investments. It lowers the cost of your investment over the long term. And if prices are low, profits are higher.
Markets will eventually recover. Therefore, staying invested for the long term produces better returns in most cases. Analyse all factors before making a decision. Cultivate the self-control to get out when the market is up. This is the secret of how to build wealth.
15. Steer clear of leverage
Since you are just starting out, you may not have much money to invest. A rookie mistake is to borrow money to venture into stock trading. This practice is known as ‘gaining leverage’, but it is not a wise policy. You will end up spending a significant part of your market returns for paying interest on the borrowed leverage. So, your profits will shrink. Moreover, if you lose money, you will need to repay the borrowed sum out-of-pocket.
16. Analyse your portfolio and realign when necessary
Study every detail about the constituents in your investment portfolio. Find out if it contains a healthy mix of securities or if it relies on just one asset type. Learn the tenure, risks, and reward profiles of all your investments.
When you start, you decide the asset allocation ideal for you today. But what is right for your portfolio today may not be the best selection a few years down the line. When the economic climate shifts, you must change your investment path as well. And a thorough knowledge of your portfolio will help you make informed decisions.
Also, when prices fluctuate, or dividends and capital gains get reinvested, your asset allocation percentage can alter. In such scenarios, you should rebalance your portfolio to reset it to your original allocation percentage.
17. Avoid the mistake of trying to time the market
It is impossible to be accurate about predictions on the market’s performance. No one, however experienced, can know for sure. Try to ignore the noise and keep to the path you have carefully charted for yourself. It increases the odds for your eventual success.
18. Automate your investments
Once you set up an investment plan, you should put it on autopilot. Opt for automatic debits on salary credit dates from your wage account towards your recurring deposits, retirement contributions, and other investment funds. It forces you to save. Since part of your salary goes into your savings schemes as soon as it comes in, you cannot spend it. Therefore, this approach promotes investment discipline.
19. Reach out to experts
Investing need not be a solitary activity. As a beginner, seeking an expert’s help is not only advisable but might also be a necessity. Take the help of financial planners and ask for tips for investing in stocks. Consult your accountant, or an income tax lawyer, and manage your money like a pro.
Last words
The right investment strategy is to learn how to build wealth. Remember to start early. Start small if you have to, but be consistent. Take risks as per your appetite, but understand what you are getting into before making any commitment. Keep researching investment avenues, and increase your knowledge, learn share-market investing tips for beginners in India. Seek the help of experts if you need. Soon you will become a knowledgeable investor, and create wealth that can fund all your aspirations.
Now that you know how to find your footing in the investment world, you can study some of the investment options that offer lucrative returns.
The right investment choices can pave the road for the life of ease that you wish to live. But when you think of investing, several doubts can arise. Is it the right time to start investing? Where to invest your hard-earned money? How to invest in the share market and navigate its volatilities?
Such questions can leave you uncertain about your investment strategy.
However, investing need not be so mysterious and complicated. Here are some simple investment tips for beginners that can stop you from faltering when you start your investment journey. Follow them and secure your financial future.
1. Define your investment goals
Chalk out your short, medium, and long-term financial goals as a stepping stone towards your investment path. Assign a monetary value to each goal and a time-frame. Your short-term goal can be a vacation abroad. A medium-term objective could be buying property. Long-term goals typically involve funding your children’s higher studies or building a retirement corpus.
Different investment schemes and strategies suit different goals. For example, if you want to safeguard your capital and draw some income from it, conservative investment plans might work best for you. But if you wish to build enough wealth to maintain your lifestyle after retirement, you can turn to the capital market’s higher return potential. In short, you need to set a final objective that’s consistent with the capital you can invest and the earnings you expect.
Moreover, what you are investing for should decide the duration for which you stay invested. Knowing this helps you figure out how to invest and amass funds within the time-frame you set to achieve your target. A short-term goal would need an investment avenue that offers high liquidity. A long-term goal might require locking in your capital until such time you need the money, allowing it to grow.
2. Assess your risk-taking capacity
High-risk investment instruments offer the potential for the best returns. But their performance depends on market conditions. Hence, before committing to any investment plan, you must work out how much loss, if any, you can withstand.
As a young professional at the beginning of your career, you might have fewer liabilities. You can then handle the high risk linked with high-reward stocks. But if you are nearing retirement, or saving for a near-term goal, you may want more stable investments.
Furthermore, the longer your time horizon, the more risk you might be able to afford. If you can stay invested for ten years or more, you can lean heavily on equities. The longer duration will help you ride out market volatilities. However, if you are uncomfortable with any potential fall in your account balance, you can choose a balanced portfolio with stocks, bonds, and government securities.
However, if you have fewer than five years to realise your goals, exposure to the stock market might not be the best strategy. And if you need funds within a couple of years, cash alternatives (say, bank deposits) might work best for you. So, always compare the various investment schemes to determine what level of risk each presents. Then select one that gives the most benefits while posing a bearable level of risk.
3. Stay regular, even if you invest small
You need not overstretch your resources to buy the right investment plans. A common rule of the thumb is to save 10%–15% of your monthly income. However, if you cannot set aside that much at the beginning, start small and increase the amount gradually. But remain consistent. Even if you need a huge sum, you can meet the demand through small but regular investments.
4. Harness the power of compounding
Albert Einstein famously hailed compound interest as “the eighth wonder of the world” and “the most powerful force in the universe.” It allows the returns on your investment to earn further interest, growing your capital. The enhanced capital attracts additional interest, and the cycle continues. And the longer you let your investment grow, the higher becomes its value.
5. Start as early as possible
If you are wondering when you should start investing, the answer is: as soon as you start earning. At a young age, you can afford a longer holding time before you need to cash out your investments. You can thus effectively use the power of compounding. Moreover, even if something goes wrong, you have age on your side. You can course-correct and get back on track to growing your wealth, without risking your long-term goals. So, you can explore more investment opportunities when you start early.
6. Get rid of costly debts
Before you start investing, reduce or repay any expensive debts you might have. It will help you save money on your interest outgo. Credit card dues, personal loans, student loans, and other such high-interest debts can eat up your earnings. You are then left with fewer funds to invest.
What’s more, the rates of interest on loans are higher than the returns from most investment instruments. In other words, the money saved on loans is equivalent to investing at a return rate equaling the loan interest rate. So, if you have surplus fund lying unused, or receive a windfall or bonus, make sure that you pay off your outstanding dues first.
7. Take care of the basics
Before investing your money, you need to cover your everyday finances. It involves building an emergency fund. Financial experts advise maintaining an emergency fund that can meet 3–6 months’ worth of expenses. For instance, if your monthly expenditure amounts to Rs 50,000, including groceries, utilities, and other non-discretionary spends, set aside Rs 1.5 lakh to Rs 3 lakh for emergencies.
This fund can cover unforeseen expenses, or see you through periods of reduced income. You won’t have to liquidate your savings.
8. Study and understand the stock market
While traditional investment tools can give you decent returns, real growth in wealth needs some exposure to stocks. As American entrepreneur Robert G Allen aptly summarised, “How many millionaires do you know who have become wealthy by investing in savings accounts?” Historically, the capital market has given positive returns with long-term investments, with typically 10-15 year terms irrespective of down cycles.
According to Bloomberg Quint, Nifty, the benchmark of India’s National Stock Exchange, produced a staggering 119.92% positive return over the past ten years. During the same period of time, Sensex, or the Bombay Stock Exchange, yielded 124.96% returns.
However, you should research every investment channel before you buy. If you are planning to dive into the stock market, invest in bonds, or buy mutual funds, read up on the companies. Learn about their revenues, account balances, and past performances. For example, if a company, regardless of its reputation, is showing lower cash balances and falling revenues, it will be wiser not to buy its shares.
Some of the metrics on stocks you can look out for include:
- Price-to-earnings (P/E) ratios
- Earnings per share (EPS)
- Return on equity (ROE)
- Various tools are available online to help you research potential investments. Spend some time on research before you invest your money and brush up your knowledge.
Also, beginners must get a broad understanding of how the stock market functions. Most investment vehicles depend on market metrics and methods. When you know the fundamentals of the capital market, you can survive slowdowns better. Try to become aware of share market parameters such as:
- Order types
- Investment account categories
- Methods of stock selection
All this information will help you assess risks and make the right selections.
9. Keep insurance separate from investment
Investors often choose life insurance savings plans as investment tools. However, many fail to understand the underlying costs.
Apart from mortality charges for your life cover, the insurance companies also charge operational overheads, agents’ commissions, and many other fees. The portion of your premium ultimately invested can be relatively low. As a result, the returns are rarely inflation-adjusted.
In contrast, since your entire premium is not going into securing your life cover, you can end up being underinsured. So, every financial advisor recommends separating your investment and insurance needs.
Term plans offer sizeable life covers – enough to cover your family’s living costs – at very affordable premiums. For investments, you can choose from the many investment options available in India. Aggressive investors can go for mutual funds, while the more conservative can subscribe to a Public Provident Fund (PPF) or open a bank fixed deposit (FD), among other choices.
10. Avoid putting all your eggs in one basket
Savvy investors prefer to diversify their investment portfolio to manage risks. Diversification means putting your money in different asset classes.
What can go wrong if you put all your funds into one company’s shares? If the company fails, you will have no fallback to cushion the loss. But when you have other holdings, gains from other assets can offset the negative returns from some stocks.
Study the different asset classes available. Then invest across the various types to weather storms better. Consider investment avenues like real estate and commodities as well. You can also invest in funds that include many stocks from different businesses and a mixed bag of interest-paying bonds.
11. Choose broad-based investments at the start
For your initial investments in the capital market, go for broad-based mutual funds. Such funds pool money from several investors and buy various securities. It is thus an uncomplicated route to acquiring different asset classes.
12. Do not neglect your retirement funds
When you are young, you might feel you need not bother about a time when your paycheck stops. But often, while meeting your current financial needs, it is all too easy to forget to address your future monetary independence.
Take into account the time value of money. The corpus you have today may not be enough to pay for all your post-retirement needs. Considering inflation, the rising cost of healthcare, and the medical complications old age often brings, you need to start planning today.
Many retirement plans also offer tax benefits on the amount of money you invest. Reducing your tax burden is another incentive to look into retirement funds when you start earning.
13. Concentrate on your savings percentage
Focus on saving enough, not on your portfolio’s short-term performance. You cannot control market conditions. But you can control the amount of money you save. By maintaining or increasing your savings rate over a viable time frame, you stand to increase your profits.
14. Take advantage of rupee cost averaging
The celebrated investor Warren Buffett put forward one of the best investing tips for beginners: “Be fearful when others are greedy. Be greedy when others are fearful.”
When investors turn sceptical about a company’s prospects, its stock prices plummet. But when they feel confident about a company’s performance, its stocks soar. Often speculations, rumours, and emotions lead to short-term fluctuations in stock prices.
However, it is wise not to be swayed by fear of losses when it comes to investing. Panic selling, on seeing your investments underperform, often leads to more losses.
Instead, you should take advantage of a down market to buy stocks at low prices. You can then acquire more shares at the same amount you spend towards your regular share market investments. It lowers the cost of your investment over the long term. And if prices are low, profits are higher.
Markets will eventually recover. Therefore, staying invested for the long term produces better returns in most cases. Analyse all factors before making a decision. Cultivate the self-control to get out when the market is up. This is the secret of how to build wealth.
15. Steer clear of leverage
Since you are just starting out, you may not have much money to invest. A rookie mistake is to borrow money to venture into stock trading. This practice is known as ‘gaining leverage’, but it is not a wise policy. You will end up spending a significant part of your market returns for paying interest on the borrowed leverage. So, your profits will shrink. Moreover, if you lose money, you will need to repay the borrowed sum out-of-pocket.
16. Analyse your portfolio and realign when necessary
Study every detail about the constituents in your investment portfolio. Find out if it contains a healthy mix of securities or if it relies on just one asset type. Learn the tenure, risks, and reward profiles of all your investments.
When you start, you decide the asset allocation ideal for you today. But what is right for your portfolio today may not be the best selection a few years down the line. When the economic climate shifts, you must change your investment path as well. And a thorough knowledge of your portfolio will help you make informed decisions.
Also, when prices fluctuate, or dividends and capital gains get reinvested, your asset allocation percentage can alter. In such scenarios, you should rebalance your portfolio to reset it to your original allocation percentage.
17. Avoid the mistake of trying to time the market
It is impossible to be accurate about predictions on the market’s performance. No one, however experienced, can know for sure. Try to ignore the noise and keep to the path you have carefully charted for yourself. It increases the odds for your eventual success.
18. Automate your investments
Once you set up an investment plan, you should put it on autopilot. Opt for automatic debits on salary credit dates from your wage account towards your recurring deposits, retirement contributions, and other investment funds. It forces you to save. Since part of your salary goes into your savings schemes as soon as it comes in, you cannot spend it. Therefore, this approach promotes investment discipline.
19. Reach out to experts
Investing need not be a solitary activity. As a beginner, seeking an expert’s help is not only advisable but might also be a necessity. Take the help of financial planners and ask for tips for investing in stocks. Consult your accountant, or an income tax lawyer, and manage your money like a pro.
Last words
The right investment strategy is to learn how to build wealth. Remember to start early. Start small if you have to, but be consistent. Take risks as per your appetite, but understand what you are getting into before making any commitment. Keep researching investment avenues, and increase your knowledge, learn share-market investing tips for beginners in India. Seek the help of experts if you need. Soon you will become a knowledgeable investor, and create wealth that can fund all your aspirations.
Now that you know how to find your footing in the investment world, you can study some of the investment options that offer lucrative returns.
