Breaking down the investment scares - Start investing today

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 The world of investments has grown over time by leaps and bounds. Rather than being exclusively meant for those who are familiar with them, investments have also penetrated among individuals across social ranks who have an introduction to investments. This growth has also meant that the kind of individuals dabbling in investments has diversified.

This drastic shift toward a more receptive attitude is owed to a number of factors. Among them, the proliferation of information and the ease with which it has been made available via the internet is worth noting. Several social media platforms, including Instagram and Twitter, are now also providing interested parties with updates relevant to investing. 

If you still have doubts and are sceptical to test the waterst, this article is perfect for you. Here’s a quick how-to guide below that helps explain how investing works.

What Does Invest Mean?

Investing refers to a method via which you put aside money for certain assets while going about your ordinary work-life routine. This is done in the hopes that the money will work for you and enjoy greater returns down the line. This money is directed towards one or more investment vehicle varieties.

It is important to note that while there is an expectation of earning an additional income via an investment, the risk of losses also exists. Those new to the world of investments, more often than not, dabble in the stock markets to acquire investment experience. 

Understanding Your Investor Profile

Before actually directing your money towards any particular asset, you must discern what kind of investor you are. If you happen to open a brokerage account online, your broker is likely to first ask you what your investment goals are, along with the extent to which you are willing to take a risk.

Investors may approach their investment holdings differently. While some may wish to actively manage growing their money, others may have a “cast it and move on” approach. Some of the more traditional online brokers provide you with the opportunity to invest in index funds, mutual funds, exchange-traded funds, bonds and stocks. 

Identifying a Goal for your Investments

When you consider investing your money, one of the first things you must do is determine your goals, by what time you wish to accomplish them and the level of risk you are willing to take on.

Long-Term Goals: Retirement serves as one of the most popular long-term goals. However, different people may have additional long-term goals they wish to accomplish. These include but aren’t limited to purchasing a house and funding a child’s higher education. Money allocated for this category of goals is ideal for investing.

Short-Term Goals: These goals constitute goals achievable in the near future such as creating a fund for the following year’s vacation. Money allocated for this category of goals ideally shouldn’t be invested in risky funds.

Outlining your Budget 

It isn’t uncommon for people to believe that large sums of money are needed to begin investing. This, however, isn’t true, and a portfolio can be started with as little as INR 500. Ultimately, the amount you are willing to start investing with isn’t the most important factor. Instead, the most pressing concern is making certain that you are financially ready to invest money and that these investments will be made frequently over time.

An important measure to take before investing is to establish an emergency fund. You should be able to tap into this fund easily and be able to withdraw the amount anytime quickly. With an emergency fund, you have a safety net that you can tap into when you need liquid funds All investments are tethered to a certain amount of risk. You don’t want to be in a position wherein you need to sell each of these investments in case of an emergency. 

Six months worth of expenses ordinarily constitutes the ideal amount an emergency fund ought to have. That said, while you don’t have to have all this money set aside prior to investing, the basic premise is to have enough such that you don’t have to sell your investments each time an unforeseen expense arises.

Determining the Kind of Help you Want for your Investments 

Once you have determined your goals, you can either begin investing directly or enlist a broker's services. Brokers today take on two forms that have each been touched upon below.

Full-service Brokers – These brokers provide an entire range of traditional brokerage services. These include but aren’t limited to financial advice geared towards retirement, expensing healthcare and everything else that money encompasses. High-net-worth clients ordinarily flock to such brokers as they tend to have considerable fees. These fees include a percentage of the transactions you undergo as well as a percentage of the assets you manage and may also account for an annual membership fee.

Discount Brokers – While these brokers weren’t previously available, they now flood the markets. They provide investors with tools that they can select such that they can make their own transactions. A number of these brokers offer robo-advisory services. Given the fact that financial services now exist in the digital space, they have begun providing their clients with a number of additional services, including educational content. While discount brokers may provide their clients with limited – if not – minimum deposit restrictions, they can incorporate other fees.

Additionally, you have the option to enlist the services of a robo-advisor. 

Understanding Robo-Advisors

Post the 2008 financial crisis, robo-advisors saw themselves gain traction. They are new-age investment advisors that operate with the aid of technology that helps bring down the costs. As a result, a wider range of investors can enjoy streamlined investment advice for a more affordable price. 

With a robo-advisory, it is possible for an algorithm to advise your investments on your behalf. These services include rebalancing and tax-loss harvesting. Robo-advisors are particularly useful for those who have long-term wealth-building aspirations. 

Selecting an Investment Account

If you wish to buy stocks, bonds, or several other investment securities, you must hold a depository (or Demat) account. This account allows you to digitally hold varied financial securities and trade shares in the Indian share markets.

In addition to holding a Demat account, a wide range of bank accounts exist that serve different purposes that you may need. Take, for instance, savings, certificates of deposit, money market or checking accounts. 

You may be able to avail of certain tax benefits provided you invest your money for a specific purpose such as retirement. That said, you may incur taxes or penalties if you withdraw your money earlier than outlined within a plan or if the reason you choose to withdraw said funds doesn’t align with the outlined rules. Alternative accounts serve generic purposes and can be used to fulfil goals that aren’t retirement oriented. 

Selecting Investments in Line with your Threshold for Risk

A large part of investment knowledge focuses on determining where exactly you should direct your funds. This largely depends on your goals and the extent to which you are willing to incur risks in lieu of a greater potential to accrue investment rewards. Popular investment assets are as follows.

Stocks - You are entitled to invest in the individual shares of companies that you anticipate will increase in value. These shares are representative of your percentage ownership of a company.

Bonds – These investments permit a company or government to borrow your money. This money is used to expense a project or for refinancing other debt. They are categorised as fixed-income investments and ordinarily provide investors with regular interest payments.

Mutual Funds – A fan favourite among beginners, these securities allow you to indirectly invest in the stock markets via professional fund managers. An advantage these funds provide is that they don’t require you to have the industry knowledge and don’t expect you to put in any time. They provide investors with instant diversification as they use pooled investor funds to purchase a basket of investments. Mutual funds exist in varied forms based on their investment objectives and the securities they invest in, which include equity, debt, and a balance of the two. 

Real Estate – These investments allow you to diversify your holdings to extend beyond stocks and bonds. Rather than being limited to a house purchase alone, you can invest in REITs or real estate investment trusts. These can be understood to be mutual funds for real estate. Fractional investments are also possible within this domain. 

Insurance Plans – These securities are ideal for those new to the markets, and they provide you with a steady stream of money. You can choose from pure protection plans such as term insurance and those that combine savings and insurance, such as unit-linked insurance plans. 

Do You Value Growth? 

Provided it is growth you seek, consider the following.

Understand your Risk Capacity

Should you have a high threshold for risk and can withstand a certain degree of volatility, a portfolio consisting of a fair number of stocks may be ideal. If your risk threshold is low, you may want to invest in more bonds. This is because they are far more stable and not as volatile as stocks. 

Goals Sought

The goals you wish to fulfil also play an important role in determining your portfolio. In the case of long-term goals, you may be more willing to take on more risks that can potentially provide you with more substantial returns. A greater amount of stock holdings would be ideal in this scenario.

The Importance of Asset Allocation

Regardless of the investment route you ultimately select, the most ideal way to fulfil your long-term goals and reduce risks is by spreading your money across many diverse asset types. This diversification is important within each asset class as well.

Asset allocation is a must since different asset classes respond and react to the market in varied ways. While some assets may respond positively to market conditions, others may respond negatively. By selecting the appropriate mix, you can help your portfolio better withstand the ever-changing markets.

Creating a diversified portfolio made up of several stocks and bonds requires time and patience. Owing to this fact, many investors gravitate towards fund investing. Exchange-traded funds and index funds can ordinarily be invested for a modest price and are easy to manage. Investing in as few as four or five such funds can create adequate diversification for your portfolio.

Breaking Down the Merits of Investing

If you’re still unsure why you should invest your money, consider the following reasons.

  • Build your Wealth – By investing your money, you can put it to work such that it stands the potential to accrue returns.
  • Compounding is Worth it – Compounding refers to the earnings generated via investment earnings or dividends that are reinvested.
  • Regular Income – Certain investments such as equities and property are geared towards providing you with regular income that may even exceed the rate of inflation.
  • Meet Financial Goals – Investing can provide you with the funds you need to fulfil your financial goals.
  • Enjoy Retirement – Provided you make strategic investments early on, you can create an adequate corpus for yourself via investing that can help fund your sunset years.

Final Thoughts

Investing is a constant process and requires patience, time, and frequency. It provides you with the potential to make adequate returns, provided you make strategic decisions. Now that you know all about investment, you should consider starting your own investment journey if you haven’t already. In fact, Fi serves as one of the best places to do so. Visit the Fi website or download the app to learn more.

Frequently Asked Questions:

Q1. How do beginners invest?

A1. Beginners can start investing by following the following steps. 

  • Identify financial goals, the time they’re willing to allocate and their threshold for risk.
  • Determine whether they’d like to manage their investments or have them managed.
  • Open a Demat account with a broker.
  • Select investments that are in line with their risk level.

Q2. What are the benefits of personal investment?

A2. Personal investments bring with them several benefits, some of which have been briefly touched upon below. 

  • Help build wealth.
  • Can help you acquire financial freedom.
  • The power of compounding helps enhance holdings.
  • Can be a source of regular income.
  • Help fulfil financial goals.

Q3. What are the new investment opportunities?

A3. Some new investment opportunities in the market today are as follows. 

  • Short-term certificates of deposit
  • Short-term government bond funds 
  • Series I bonds 
  • Cryptocurrency 
  • Dividend stock funds

These are merely suggestions and don’t encompass all new investment opportunities available today.

Q4. Which share is best for investment?

A4. The best shares to invest in change with time, given that the market is prone to fluctuations and volatility. That said, the following stocks are enjoying a good run at the moment.

  • Axis Bank Ltd (AXISBANK)
  • Bharat Electronics Ltd (BEL)
  • DLF ltd (DLF)
  • IndusInd Bank Ltd (INDUSINDBK)
  • Tech Mahindra Ltd (TECHM)

Q5. Is an investment fund a good idea?

A5. An investment fund can be particularly beneficial to those that lack knowledge of the markets and are unable to identify viable investments on their own. Further, investment funds can provide their holders with an adequate amount of diversification which is another plus point.

Q6. Where to invest?

A6. The direction for your investments depends upon your threshold for risk, your timeframe and the amount of money you are willing to risk losing. Simply put, your investor profile will provide you with an appropriate answer on where you ought to invest your money. 

Q7. Where to invest money to get good returns?

A7. As of 2022, the following investments are linked to high returns. 

  • Unit Linked Insurance Plans
  • Public Provident Funds
  • Mutual Funds
  • Bank Fixed Deposits
  • National Pension Schemes

These are merely suggestions and don’t encompass all investment avenues that provide good returns.

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