Gone are the days when most people just saved money for the sake of ‘saving’.
Experts say today’s young investors agree that if financial independence is one’s goal, then investing is the best way to achieve it. However, most of them need a little help, something like a beginner’s investment guide.
Here is a general guideline that first-time investors should keep in mind when investing:
understand your risk
Risk and return go hand in hand. Shrinath ML, Senior Research Analyst at FundsIndia says: “There are no investments that come with ‘zero risk’. The first thing you need to do is understand your personal risk profile, that is, your ability and willingness to take risks.” After this, you can make a thorough comparison between different asset classes and schemes and choose the ones that suit you best.”
Diversify your portfolio
Shrinath explains that if we had a crystal ball that could tell us about the future, we could invest all of our money in that one asset that will generate the highest future returns. However, nobody knows what will happen in the future. Therefore, diversification becomes important.
Furthermore, he adds: “A well-diversified portfolio helps minimize the overall downturn during periods of market volatility. In general, having exposure to at least 2-3 asset classes (such as equities, fixed income, gold, etc.) helps ensure reasonable long-term returns with a lower degree of temporary dips.”
There is no right time to get into stocks
There is no guarantee how the stock market will behave in the short term and there is no right time to enter or exit the market. Shrinath says, “What we do know is that stocks are a growth asset class and have historically done well over longer periods of time (5+ years). So plan well and stay invested for the long term to ensure capital appreciation and wealth creation.”
Review your investment regularly
It’s always a good idea to review your portfolio every six to twelve months to make sure your portfolio is in line with your financial goals.
Shrinath notes, “Change is the only constant and the same applies to your financial needs. If your financial priorities have changed, you need to make the appropriate changes to your portfolio.”
In addition, you can also get help from a certified investment advisor if you find it difficult to review your investments on your own. Ultimately, experts say, to start your investment journey, all you need to do is draw up a simple plan based on your risk profile, time horizon, and financial goals.