New to Investing? Here’s a beginner’s guide to get you started
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People commencing their careers either in a job or business often times get so lost in the newfound freedom from their first paycheck that they seldom consider the fact that the influx of income wouldn’t last a lifetime; well, not until one puts it to good use today. The initial income provides the individual a sense of success. However, very few people realize the necessity of saving and investing money early in life.
If you’re new to investing, remember starting to invest early is vital to make the most from investment opportunities and build a corpus to maintain the same lifestyle after retirement. Early investors stand a chance to become excellent by repeatedly learning, continually honing, and expanding their investing skills to make money.
However, the field of investing is massive, and the number of things to learn is practically limitless. Fortunately, you can start by learning the primary investment vehicles and asset classes and improve your knowledge over time. Hence, if you are new to the world of investing, here are a few saving and investment vehicles you can explore.
You can choose bank deposits if you would not like to take any risk. Keep in mind, low-risk investments offer you low returns. If you have a lump sum to invest, then you can go forward and capitalize on fixed deposits (FD) – the interest rate can help you gather a decent sum if invested over the long term. If you can consistently invest a fixed sum, say once a month or quarter, you can invest in a recurring deposit (RD). One thing to remember here is that the income offered by bank deposits is undoubtedly not a match to the possible returns offered by mutual funds and the stock market – let’s look at these other options as well.
If you are looking at a mid to long-term investment option, you can start with mutual funds. The benefit you have is that you don’t need to be an expert for investing in it. Mutual funds are skillfully managed by fund managers who have a track record of handling investment groups. Mutual funds offer you various choices such as low, medium, and high-risk investments. You can choose a fund based on your risk appetite. Further, you can also invest in equity, debt, and other types of funds.
If you are an early investor, you can invest in equity funds as these are known to provide outstanding returns in the long run. Hybrid and debt funds are also a worthy choice. However, understand the pros and cons before investing in any of these. If your goal is to save taxes, you can invest in an equity-linked savings scheme (ELSS) as it offers tax savings and growth.
The simplest way to invest in mutual funds is to invest in a systematic investment plan (SIP) every month. With the plethora of options available today, you can start investing with as little as INR500 every month.
Investing in the stock market provides you a chance to earn one of the best returns among all investment options. You can invest with a short-term (trading) or long-term investment horizon, taking advantage of market conditions and earning a handsome profit. However, to participate in stock markets, you must first acquaint with and gain market knowledge. Participating in the stock market with no prior knowledge or experience is a recipe for disaster. A relatively safe option to invest is in large-cap and blue-chip stocks.
Exchange-Traded Funds (ETFs)
Exchange-traded funds (ETFs) are similar to mutual funds and have become relatively popular. They trade throughout the day on the stock exchange, where they reflect the buy-and-sell behavior of stocks. The value of the stock can go to extremes during the progression of a trading day. These trades can comprise anything from developing markets, supplies, different business sectors such as biotechnology, farming, and more. Due to the comfort of trading and comprehensive coverage, ETFs are tremendously popular with investors.
A bond is a debt tool representing a loan made by a lender to a debtor. A typical debtor will be either a private or a government entity, where the debtor will issue a fixed interest rate to the moneylender in exchange for spending their capital. Bonds are used in financing operations, procurements, or other projects. Bond rates are influenced by bank interest rates and are traded during quantitative easing or whenever other nationalized bank increases their rates.
The Bottom Line
The critical factor to building wealth is to learn how to invest at a young age. Investment learning is necessary as it offers you a chance to accumulate a considerable amount over a period of time. You can fall back on this to achieve your long-term goals. And above all, expand your portfolio across a wide range of income options.