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Basic Investment Principles for Beginners
Investment is like planting a tree today so that in future you and your family may be able to enjoy its fruits and also be able to rest in its shade comfortably. You all know how important it is for you to provide financial security to your family and yourself.
It is needless to say that all the hard work and effort that you put in from morning to evening in earning those dollars and rupees is aimed at providing your family and yourself a good standard of living and also securing future. The best way to manage your hard earned money is to invest it sensibly so that in future it not only helps you when in need but also multiplies itself in the due course of time.
There cannot be a rule book that can guide you through with your investment planning and procedure but there are a few basic principles or guidelines that can help you to become a successful investor. These are:
- Investing Early – It is always advisable to start investing as soon as you start earning. It is quite obvious that you may be able to invest say as little as Rs 500 every month but you should not forget that compounding earns you good margins even with small savings. This also cultivates a habit of investing regularly in a disciplined manner. It is also advisable to re-invest the interest that you earn and just wait and watch how magically it grows through compounding formula.
- Analyze Yourself – This means it is important for you to identify the kind of investor you are. It is important for you to realize if you are the one who will get deeply involved in the art of investing and put in your time and energy in exploring every possible lucrative investing option thus earning higher returns, or are you an individual who will put in less effort and time and will be satisfied with a lower profit margin.
- Know the Market in which you will Invest – It is important for you to gather as much information as possible about the scheme, plan or options in which you plan to invest. It is also important for you to take a glance at all the market players who are offering the same or similar schemes and plans and the returns or commitments that each one of them is giving. This will help you in cracking the most profitable deal for your investment. It is very important for you to understand completely the plan you are investing in, the player you are investing with and the returns you are aiming at.
- Investment Goals – It is advisable for you to comprehend your goals pertaining to your investment. This would include the assessment of your current financial condition, the amount you can spare from your expenditure, time frame i.e monthly, quarterly, half-yearly etc, the kind of investment and also the kind of returns that you wish to have which again maybe based on your personal requirements like for a retired individual monthly credit of interest seems to be quite apt.
- Diversification of Funds – As the famous phrase goes “You should never put all your eggs in one basket” it is very important for you to diversify your funds i.e do not put all your money in one particular scheme or plan. Always invest in a bouquet of funds in order to balance the risk.
- Time Factor – When it comes to time, you need to keep in mind two factors related to time. First is the time when you enter the market and the second is the duration for which you play in the market. It is very difficult to anticipate the movements in the market. You need to be clear and specific about when you enter the market and for how long you have to stay there.
- Long Duration Investment – It is always advisable to stay tuned in market for a longer duration. The duration of investment determines the risks and returns on your investment. It depends on you as to how much return you aim at and the risk you are ready to take. Generally if you stay invested for long duration, your risk gets balanced due to an average market condition thereby bringing better returns. Put it this way - it is important for you to analyze the risk that you can take.
- Adopt a conservative approach when it comes to valuation of profits – you need to understand that you can not be overly optimistic about the investments you are making. You need to adopt a conservative approach while weighing your returns from a particular investment. It is very important to be cautious and careful while computing your future growth rates.
- Hallo and Horn Effect – Do not get affected by the Hallo and Horn Effect. This means that you should not judge an investment plan or scheme merely on the basis of its past performance or solely because it benefited your friend so it will benefit you as well. You cannot totally neglect the past performance of the stock but you cannot predict the future of the same solely on past performance.
- Don’t let one slump affect future prospects – It is very important to be cautious. So goes the famous phrase “once bitten twice shy” but it emphasizes on being cautious, learning from past experiences but it doesn’t say that you will let one market slump hinder your long-term investment planning. Do not get discouraged by the bulls and bears of the market.
- Once sold, it is gone – It is always advisable to let bygones be bygones. Once you have taken a decision of selling your stock, do not check the price of your stock once you have sold it. You have just started investing. It’s a big life and a long game. “Ohhh I sold it…should have waited more.” This can always tickle your mind after you have sold your stock. But what if you had waited and the returns have been less than what you gained today? Seize the day and go ahead with no regrets.
- Keep Patience – There are moments when we all run out of patience and when its money that you are playing with it is obvious to be anxious and be impatient. But keeping your cool will always help you to sail smoothly through the lows and highs of the market.
- Monitoring your Portfolio – It is very important for you to keep yourself updated with the market scenario and keep a constant check on your portfolio. You cannot hold on to a stock forever. So keep updating your portfolio with the ever changing scenario of the volatile market.
- Accept, you can not be right always – You need to accept this before you get started that you are a human being and you are bound to make mistakes. You can not always make a right decision for every investment that you make. The key is to make the best out of the right choice and to learn from the wrong ones.
Financial Investment Options
There are a number of financial investment options available in the market and you can pick and choose as per your requirement from the bouquet of options which are as follows –
- Precious Stones
- Mutual Funds
- Fixed Deposits
- Recurring Deposits
- Real Estate
- Insurance Plans
Contributed By: Megha Sharma
Megha Sharma works as a guest lecturer in Delhi. She holds an MBA & Doctorate from the UPTU. With extensive knowledge and experience in various financial products, she also works as a consultant in banking & finance domains wherein she offers advice to her clients in managing personal finance.
- vivek:I am NRI. I have booked a flat in India of around 40 lacs.I have got deposit of around 10 miliion INR. Can you please assist me in making a good portfolio. Please inform tentative percentage break up for investment in differnt finanical investment options.18-Jun-2013 12:53 PMReply
- Naman Chilwal:I am 24 years old. I can save invest about 2000 rs per month. Please suggest me about where should I invest for getting long term benefits.27-May-2013 10:28 PMReply