Ever thought, you have to keep asking your parents for pocket money? Ever had the urge to earn your own money, right away and use it for greater use in the near future? Investment is the solution! Here is A Guide for Young Investors, willing to lose a little, to gain a lot!
What is Investing?
Investing is a way to set aside money while you are busy with life and have that money work for you so that you can fully reap the rewards of your labour in the future. It is basically high yield over a long term. Investing is a means to a happier ending, with a few risks involved. Legendary investor Warren Buffett defines investing as “… the process of laying out money now to receive more money in the future.” The goal of investing is to put your money to work in one or more types of investment avenues in the hopes of growing your money over time. Investing in the stock market is the most common way for beginners to gain investment experience.
Why Invest?
In order to build wealth, you should invest your money. If you don't invest, you will miss out on opportunities to increase your financial worth. Needless to say, you have the potential to lose money in investments, but if you invest wisely, the potential to gain is higher. If not invested, the buying power of your money will depreciate overtime. The reasons as to why one should invest are as follows:
Wealth Creation - Investing your money will allow it to grow. Most investment vehicles, such as stocks, certificates of deposit, or bonds, offer returns on your money over long term. This return allows your money to compound, earning money on the money already earned and creating wealth over time. If a person invested Rs 724 in June 1989 then the amount would have compounded to Rs 34,903 today!
Beat Inflation - 100 rupees today would only be 96.5 rupees next year according to recent Indian inflation statistics, which implies that you would lose 4.5% of your money every year if kept as cash. Returns from the investment helps maintain the purchasing power at a constant level. If you don't beat the inflation rate, you'd be losing money, not making money!Accomplish financial goals - Investing can help you reach bigger financial goals. This return on your investments can be used toward major financial goals, such as buying a home, buying a car, starting your own business, or putting your children through college.High-returns - Investing would help to achieve high returns as compared to bank's saving account which provides a mere 4 per cent return. Investing in markets could provide you returns upwards of 20 percent if given the right time horizon.
When to Invest?
The answer to that is pretty simple. The right time is now. Investing sounds more intimidating that it is. Yes, there’s always a potential risk for loss, but there’s an even bigger potential for serious gain.
Doing anything for the first time can be terrifying, especially when it involves your hard-earned cash, but don’t worry the following tips will be of help:
1. Check your emotions at the door
“Success in investing doesn’t correlate with IQ … what you need is the temperament to control the urges that get other people into trouble in investing.” That’s wisdom from Warren Buffett, chairman of Berkshire Hathaway and an oft-quoted investing sage and role model for investors seeking long-term, market-beating, wealth-building returns. Buffett is referring to investors who let their heads, not their guts, drive their investing decisions. In fact, trading overactivity triggered by emotions is one of the most common ways investors hurt their own portfolio returns. All the stock market tips that follow can help investors cultivate the temperament required for long-term success.
2. Pick companies, not ticker symbols
It’s easy to forget that behind the alphabet soup of stock quotes crawling along the bottom of every CNBC broadcast is an actual business. But don’t let stock picking become an abstract concept. Remember: Buying a share of a company’s stock makes you a part owner of that business. You’ll come across an overwhelming amount of information as you screen potential business partners. But it’s easier to home in on the right stuff when wearing a “business buyer” hat. You want to know how this company operates, its place in the overall industry, its competitors, its long-term prospects and whether it brings something new to the portfolio of businesses you already own.
3. Plan ahead for panicky times
All investors are sometimes tempted to change their relationship statuses with their stocks. But making heat-of-the-moment decisions can lead to the classic investing gaffe: buying high and selling low, so be careful!
4. Build up positions gradually
Time, not timing, is an investor’s superpower. The most successful investors buy stocks because they expect to be rewarded — via share price appreciation, dividends, etc. — over years or even decades. That means you can take your time in buying, too, so be slow, steady and then win the race!
5. Avoid trading overactivity
Checking in on your stocks once per quarter — such as when you receive quarterly reports — is plenty. But it’s hard not to keep a constant eye on the scoreboard. This can lead to overreacting to short-term events, focusing on share price instead of company value, and feeling like you need to do something when no action is warranted.
Steps to Investing:
1) Are You Ready to Begin Investing?
It is important to make sure that you are truly ready to begin investing before you do.
● If you are not currently ready to begin investing, set a goal of when you will be ready.
● Start learning about investing and what your goals are.
● Set up a debt payment plan that will allow you to start investing as soon as possible. The more aggressive you are in paying off your debt, the sooner you will be able to begin investing.
2) Determine How Much You Can Invest
It is important to determine how much you can invest initially, and how much you can continue to invest either monthly or annually. This will help you determine which investments are the right ones for you and to help you set clear goals on what you want to achieve. Remember that you do not want to invest your emergency fund, since you may need to access the funds quickly. These types of investments are more for building wealth and long-term savings goals.
3) Find a Financial Planner or Investment Firm
The next basic step in investing is to find a financial planner. You will want to do your first investing in basic investing tools, such as mutual funds. Your financial planner should be someone who is willing to take the time to explain the different types of investments to you and make your extravagant portfolio. If you are comfortable investing on your own, then you will need to find an investment firm that will allow you to trade online.
● A financial planner can help if you are not sure what to do.
● Online investment firms may cost less, but you will need to understand what you are going to invest in and how to spread the risk.
● Invest time in learning how to read and understand the market.
4) Understand the Different Type of Investment Accounts and the Risk
It is also important to understand the basic investing tools and accounts. These accounts can be used to help you save for retirement as well. You should understand the difference between mutual funds and money market accounts. You should also spread your wealth among several different accounts, even if you want to focus primarily on mutual funds. As you look at the accounts, you need to determine how comfortable you are with taking risks. This is where a financial planner can help you. When you are in your twenties, you can take more risks because you have time for the market to recover, but as you get older, you will need to be more conservative in your investments.
● Ask questions about the investments.
● Read about the different investment types, both online and in financial magazines and books.
● Do your research and be comfortable in what you are going invest in.
5) Take the plunge of investment in your desired avenue, with care.
After thorough consideration of the factors of investment-risk, return, liquidity, safety etc., go ahead and invest! Be careful not to get swayed by emotions as when emotions dictate investors, their decisions suffer from poor long-term results. The fear of missing out(FOMO) if drives investment decisions, can lead to disasters. The recent cryptocurrency mania, is an example. Many investors, perhaps stroked by fears that their co-workers and neighbours would “get rick quick” without them, chased their crypto stocks with unproven business models. As rational behaviour began to set in and crypto stocks plummeted, inexperienced investors were left holding the bag. So, think carefully, weigh your options wisely and go for it!
As a young child, Buffet would spend his days watching what investors were doing and listening to what they said, and doing menial jobs followed by slowly investing in a diverse portfolio. His worth now is 8650 crores USD. With a little bit of curiosity, he is now par excellence. It’s now time that you become the next Buffet!
Comments