Beginner’s Guide to Investing

“In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.” – Peter Lynch

It is true that money saved is money earned but you are certainly not earning much if you are not investing your savings. You may be working hard to keep aside some money every month in your savings account, but your bank account interest is really low. You need to invest your savings to accomplish your financial goals. If you have never invested before and are apprehensive about how to do it, here are some pointers:

Meaning of investment

Simply put, investing means putting your money to good use for an increase in its value over a period of time. Every investment has its own financial goal, but it basically helps you grow your money for future purposes. When you choose to put your money into various investment options, firstly you create additional sources of income and secondly your money grows.

Importance of investing

You work hard to earn and save and when you invest, you make your money work for you as well. It is only through investments that you can preserve your money and capitalize gains in the long run. You get returns in the form of interest and dividends that supplement your income during your work years. As you progress in your life and career, this extra earning should increase as well. Investing also acts as a measure to combat rising costs, inflation and emergency situations with sufficient funds without distressing your present lifestyle after you retire from an active job. The earlier you start investing, the better are the gains for you.

Make a Start

Investing appears more complex and difficult than it actually is. The best way to start would be to set up automatic deductions from your salary or savings account for a SIP or recurring deposit or Fixed Deposit. Liquid funds are another great option for beginners of investment. This way your money is routinely invested and does not require you to make separate plans for the purpose. Easy access to funds in your account leads to needless expenditure which can actually be put to better use. When you are new to the idea of investment, here are a few things that you need to bear in mind:

• Creating an emergency fund should be a priority. Accumulate an amount equivalent to your expenses for at least two months to deal with emergencies before you plan other investments. You can put this money away as a short term fixed deposit or liquid fund like Savings+ offered by Money View for quick access.
• ‘Don’t put all your eggs in one basket’ is a cardinal rule for investment. Diversify your portfolio and have a combination of stocks, security bonds, fixed deposits, mutual funds, cash reserve, real estate, precious metals etc.
• Go for simple investment options that offer assurance and security with minimal or zero risk. As an investor, you must know investing involves risks but it is wise not to invest in anything that you do not understand or is exceptionally profitable.
• Remember to review your portfolio at least once in year if not more. You need to understand how your money is growing, add more and modify investments for improved returns.
• Think of the bigger picture while investing. Have short-term and long-term goals while investing and choose your investment options accordingly. Also investment for tax planning is a great way to multiply your money while saving taxes.

Investments are as important as savings. You need to have a systematic plan in place so that you can secure your future. Spreading your money across various investment options and diversifying your portfolio can fetch you good returns over a period of time. Remember, as you sow, so you reap – hence sow now to reap rich returns in future.