How to get started investing as a beginner? – 4 simple steps.

By Shweta Kukreja

Investing is a great way to make your money work for you. In Warren Buffet’s words “It is a process to lay out money now to receive more money in the future”. The goal is to make more money without having to put intensive effort.

?Depositing money in a savings account is quite antiquated. However, it is not bad up to some extent. Everyone should keep a six-month emergency fund in the savings account in case of emergency or contingency. It is wiser to do so.?

?Before investing, ask yourself what kind of investor you are. If you know why you are investing and what your goals are, it will benefit you in the long run. Some people use the “set it and forget it” strategy, while others invest and sell every day, such as day traders. So, it is essential to know what type of category you fall into.?

?If you want to start investing but don’t know how much to invest, where to invest or when to invest, follow the steps given below to kickstart your investing journey:?

?Step 1: Decide the budget

The primary step is to decide your budget for investing. How much you can invest and how often you can invest are the two key components. If you have debts and mortgage payments every month, consider investing small. First, clear off your debts and then invest. It will help you invest more clearly and wisely.

?Step 2: Understand the investment options

There are infinite investment options available to an individual, companies, and groups. You can LITERALLY invest in any sector you like. The most obvious choice for beginners includes index funds and 401(k)s. Both options are considered less volatile and beginner’s friendly. You can invest in real estate, stocks, bonds, ETFs, index funds, etc.?Some of the investing options include:

1. Stocks – A stock is a share of ownership in a company. It is also known as equity. As a beginner, you can invest in your favorite companies, like Apple, Amazon, Google, Reliance, etc. The market price fluctuates daily, and so does your profit/loss per share.

Pro tip: Always invest in the companies you know. Don’t let FOMO get in the way of your investing decisions.

1. Bonds – Bonds are basically a loan for several years to a company or government entity. The company will pay you back after a certain number of years mentioned in the bond document. You will receive the interest for the bonds you invested in. They are less risky compared to the stocks because you will receive your investment back after a period and interest in the meantime. In stocks, there is no guarantee that you will receive the same amount you invested, say five years ago.
2. Mutual Funds – Another investment option is mutual funds. It is one of the best ways to get your money's worth. Mutual funds allow individuals and investors to skip the work of picking individual companies and stocks and instead make a diverse collection of one transaction for you to invest. One of the most popular types of mutual funds is Index funds. Index funds charge a lower fee compared to active mutual funds because index funds eliminate the professional management and follow the performance of a single stock market index, i.e., S&P 500.
3. Exchange-traded Funds (ETFs) – ETFs are similar to mutual funds and hold many individual investments together. The only difference is that ETFs trade all day long just like stocks. It is a good option for beginners and small-budget individuals.

?Step 3: Open an investment account

You are required to open an investment account to start investing in stocks and stuff. You can open a Demat Account online. Many companies can create a Demat account for you without charges. You can also consult a broker to set up an account for you. It has never been easier to open an account. If you don't have a 401(k), you can ask your bank to set up a retirement account like a traditional or Roth IRA.

?If you have another investing plan, you can avoid the retirement account and go with a brokerage account instead. The key is to invest for a long time. Only invest the money that you won't need for the next 5-10 years. If you invest in any investment option and take out the money within a year, it won't help you achieve your goal. The value of stocks increases over time. The investment stocks of INR 5,000 today might be INR 11,000 in the ten years from now. Let's say you invested in 10,000 stocks when the value was down, and now it skyrocketed. It will make you millions from a small investment. You can do the math. This is the power of compounding.

?Step 4: Pick an investment strategy.

The last step is to pick an investment strategy based on your saving goals and time horizon. If you are planning to invest for 20 years, stocks and index funds are the best options. If you think you might need money within 5 years, you can invest in a short-term savings account, low-risk investment, and cash management account. However, it is always best to invest in the long-term, with a minimum of 10 years.

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Investing in the stock market and real estate is how rich people make money. The tax rate for capital gains is between 10 to 15% in India, whereas the income tax rate ranges between 20 – 30%. The income tax is what millennials pay, and the capital gain tax is what rich people pay.

Warren Buffet once said that he pays a lower tax rate compared to his secretary. It is because the billionaire's wealth is not highly taxed due to their diversified investment portfolios. So, investing helps you pay fewer taxes and accumulate more liquid money against your savings account income. If this is not a good enough reason to invest, I don't know what is.

~ Shweta Kukreja (@ShwKukreja)