In the early years of your career, the pressure is surely immense. You are finding ways to adapt to the corporate world, striving to strike a balance between work and personal life, figuring your strengths (in terms of skills) and waiting eagerly for that paycheck at the end of the month. And this is where you start receiving advice you never asked for! Everyone begins telling you what you should do with your money. You hadn’t got past your utility bills and grocery lists, and now people start dropping the term “investment” on you.
It’s a tough pill to swallow, but a necessary one. While many in your network will ‘guide’ you into options that they never bought into, it is smarter to do your own research before parking your money in any assets. Investment is no joke, and if done smartly, can prove to be a secondary source of income! (Wouldn’t that be great?)
But you have no clue where or how to begin investing, right? Therefore, we have compiled a list of investment tips to help young investors start off.
- Get your Personal Finances in order
Personal finance is critical to starting on your investment journey. Ensure that amounts for your utilities and essential bills are set aside. Also set aside any outstanding loan payments or credit card bills you have. Financial management is as important personally, as it is for a business. - Invest in what you understand
There are many financial instruments you would not understand right at the beginning. And that is alright. But there would be some you have either heard of or studied about. Read more about them and then decide on which you are most confident of. You should know enough about it to be able to explain to a 5-year old, if need be.
Read about financial techniques used in growing money. This will help you understand what you should expect from your chosen option, and the potential returns associated with it. Do your research and do it well. Investment is a long-term game, so play it accordingly. - Set investment goals
Set realistic goals as to how much you wish to invest and why. This is NOT a “get rich quick” scheme. Remember that. Smart investors invest for longer periods and let compound interest work its magic. Be clear about your vision for investing and craft a plan. It will help you stay on track. - Realise your attitude towards risk
How do you handle risk? What do you do when faced with a situation – take the easy way out, or dare to take on a challenging path? The same translates into your ability to assess and manage risk in investing too. Once you know your personal tolerance to risk, you shall be able to determine better what the limits to your financial risk are. You will need this, when it comes to choosing between investment options which seem lucrative but are risky and those which are safer with lower returns. - Learn and understand basic analysis
Basic analysis of the market trends and a company’s performance will help you decide whether or not you should invest in it and guide your timing too. Learn basic financial terms so you can at least read the market summaries and annual reports of companies. It will also help you in understanding what your broker talks about. - Select your broker
In the beginning, it is better to select a broker or an app (that serves as a broker) to help you buy your intended investment instruments and hold them. Speak to a few brokers and/or explore a few apps. Find out their brokerage fees. If it is over 1%, let it go. Though it may seem like a small amount, when the amounts get bigger in the future, it will start affecting your profits. Anything within 1% is fine and should work well. - Select an investment strategy
Once you have done your research and decided on your investment goals, it is time to pick a strategy to get there. Since you are new to the game, prefer safer strategies that help you with gains in the longer term. But if you so choose to go with shorter term strategies, invest smaller amounts that you wouldn’t mind if it were lost.
Do not try and gauge the market, because you cannot predict precisely what will happen to companies or industries. Rather, analyse the market conditions to plan your next move. (Well, even the experts get it wrong, sometimes!) - Invest in Index Funds
This is one of the best options for beginners. This is a list of funds that comprise of the top-performing companies on the particular stock exchange. When a company isn’t performing up to the required standards, or if there is a factor affecting the industry within which the company operates, it is replaced by another company. So, this way, your investment will always be secure, and give you balanced returns. - Invest in company stocks and/or commodities
Once you have got a hang of the process of investing, and the discipline required to watch your money grow, it is time to take the next step – stocks. Yet again, conduct research on the companies which give dividends, as compared to those who don’t. Understand their working styles and decide accordingly. - Diversification
Once you have begun investing in Index Funds and stocks, try and diversify your portfolio. Do not invest in stocks of companies in the same industry. If there is an impact on the industry (like the energy industry due to the conflict between Russia and Ukraine), then your entire investment will take a hit. But if you spread it out well, one non-performing sector will be compensated by the other performing ones. - SIP (Systematic Investment Plans)
Setting up a SIP will allow you to invest in the same funds (of your choice) on a monthly basis. This will create a routine, and help you form a budget, wherein you will factor in what fixed amount will go into your portfolio. At the beginning, it is very important to form a budget and a disciplined routine. You would be surprised to see the power of compound interest within the first couple of years. - No leveraging
Do not borrow money to invest, even if it seems like it will make you larger profits if you invest larger sums. Invest what your financial capacity allows you to. Borrowing money is dangerous, because if at all you encounter losses, you could go into serious debt. - Do not be emotional
It is no surprise that we do tend to get carried away when we are young and at the start of our careers. Do not let emotions drive your decisions. Just because a company’s initials on the stock exchange match the initials of your name, doesn’t mean you should invest in it! Research and understand all about the investment, before taking any further step. - Question yourself
Keep questioning yourself. This will keep a check on your strategy, understanding and goal-setting towards your investment. Questioning yourself will help improve your decision-making skills.
It may all seem overwhelming in the beginning, but once you understand what you are doing, it becomes fun. Starting early is better than starting late, and it will help you leaps and bounds in terms of managing your money.
With inflation rates soaring, saving money does not help, because the value of that money is decreasing with time. So, why not invest it and let the money work for you?
What do you prefer investing in? Let us know in the comments below.