Gone are the days when most people simply saved money for the sake of ‘saving’.
Experts say young investors today agree that if one’s goal is financial independence, then investing is the best way to get there. However, most of them need a little bit of help – something like a beginner’s guide to investing.
Here is a broad guideline that first-time investors must keep in mind when investing:
Understand your risk
Risk and returns go hand in hand. Shrinath M L, Senior Research Analyst at FundsIndia says, “There are no investments that come with ‘zero risk’. The first thing you need to do is to understand your personal risk profile i.e. your ability and willingness to take risks.” After this, you can do a thorough comparison between different asset classes and schemes and choose the ones that suit you.”
Diversify your portfolio
Shrinath explains, that if we had a crystal ball that can tell us about the future, we can put all our money into that one asset that will deliver the maximum future returns. However, no one knows what will happen in the future. Therefore, diversification becomes important.
He further adds, “A well-diversified portfolio helps to minimize the overall decline during periods of market volatility. Generally, having exposure to at least 2-to 3 asset classes (like equity, fixed income, gold, etc) helps in ensuring reasonable long-term returns with a lower degree of temporary declines.”
There is no right time to enter equities
There is no guarantee how the equity market will perform in the short term and there is no right time to enter or exit the market. Shrinath says, “What we do know is that equities are a growing asset class and have historically done well over longer time frames (5+ years). So, plan well and stay invested for the long-term to ensure capital appreciation and wealth creation.”
Review your investment regularly
It is always advisable to review your portfolio every six to twelve months to ensure that your portfolio is in line with your financial goals.
Shrinath points out “Change is the only constant and the same is true for your financial needs as well. If your financial priorities have changed, you have to make appropriate changes to your portfolio.”
Additionally, you can also take the help of a certified investment advisor if you find it difficult to review your investments on your own. Lastly, according to experts, to start your investing journey, all you need to do is chalk out a simple plan based on your risk profile, time horizon, and financial goals.