List of Investing Tips for Beginners: It’s a no-brainer that everyone should be investing their money; we are putting our hard-earned money to work, and that is how it grows. Investing is essential now, the days of saving money are long gone.
Saving money is simply insufficient. There are numerous ways to invest money, including in equity, bonds, real estate, commodities such as gold and cryptocurrency, as well as luxury watches, old retro cars, and good paintings.
In the volatile world of investment, it makes no difference where you put your money; what matters is how much return you get for your capital and risk. Investment is a process where the money doesn’t grow overnight.
List of Investing Tips for Beginners
Here are five investing tips for beginners who want to build wealth, Keep reading to find out more.
Investing Tip #1 – Have A Financial Plan
Always have a purpose when you are investing money. Having a financial plan makes us accountable. We stick to our purposes. Everyone is unique, and they go through different phases in life.
Having a sound financial plan will help us get through each phase smoothly. Investments are a subset of financial planning.
Financial planning lets us know how much we can invest and what our risk tolerance is. Creating a financial plan is based on individual preferences and needs.
To give a basic idea, this is an example: Let’s say a young graduate gets her first job. She is earning 30,000 per month. She uses the 50/30/20 rule.
This rule states that 50% of the income goes to necessary and mandatory things, 30% of the income goes to where we spend on things that enhance our lifestyle, and 20% of the income goes to saving and investments.
Having some liquid cash in a savings account is essential because we never know when an emergency will arise.
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Investing Tip #2 – Understand Your Investments
There are various types of investments, each with its own set of advantages and disadvantages. Understanding what we want to invest in is important because investments will have ups and downs.
Understanding each asset segment will help us determine what we are comfortable with, and understanding the ecosystem for our investment will allow us to buy and sell at the appropriate times
.To determine which assets are best for us, we must first determine our risk tolerance and time horizon. The below table will give a brief idea of each asset class.
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ALSO READ: 5 Most Common Money Myths You Need to Avoid
Investing Tip #3 – Diversification And Asset Allocation
Never put all of your money into one asset class. To build a portfolio, always invest in a mix of different asset classes.
When building a portfolio for your investments, the general rule is that the assets we buy should have opposite co-relation, which means that if one asset rises, the other will fall, minimizing our losses.
When the economy is in distress and the stock market is falling, the price of gold and bonds rises.
This is because when the general economy is down, investors want to move to safer instruments, and gold and bonds are safer than equity. If investors had a more diverse portfolio, they would suffer greater losses.
Creating a portfolio is a time-consuming process that differs from person to person. The most common method of asset allocation for a portfolio is through considering the age of the investor.
Source – The Tortoise Approch
Investing Tip #4 – Learn The Power Of Compounding
When it comes to investing, learning the basics of compounding is a must. This applies to all types of investment. People who understand the power of compounding have a lot of potential to make exponential returns.
Compounding works by growing our wealth in an exponential manner.
The formula works this way: whatever interest is earned, it is added back to the principal, and that Interest + Principal is then reinvested as the entire sum to accelerate the growth of the principal.
An example of how compounding works
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An example of wealth is built using compound interest.
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In this example, we are investing in an instrument where we have to deposit Rs 5,000 every month for the next 10 years. After 10 years, the total investment amount will be 6,00,000.
The rate of interest is 10%, which is provided every year. After 10 years, our investment will be 1,032,760.
Investing Tip #5 – Be Open To Taking Advice And Learning More
If investing was easy and accessible, everyone would have been rich and wealthy. With the rise of internet education, micro-wealth managers, investment advisors, and stockbrokers, we can see a very high participation rate.
One must have money in order to invest. An average person can’t leave their primary job to do all of these. We need to have professional help or tools that will help us deal with this ourselves.
To summarize, we must develop a financial plan for ourselves that will provide us with guidance on financing and budgeting. Learn and understand what our investments are. Diversify among different asset classes to reap the most benefits.
Put our money to good use. Maintain our knowledge of the field and continue to expand our knowledge base. For more tips and ideas on investing, check out the Courses section on FinGrad. That concludes our post on Investing Tips For Beginners. As always, Happy Investing!
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