Investing 101: A Beginner's Guide

"Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it." - Albert Einstein

Young people have a unique advantage when it comes to building wealth: time. The sooner you start investing, the more time you give your money to grow and compound.?

Getting started can be intimidating, especially if you have not been exposed to the world of investing before. I will walk you through the basics to kickstart your financial expedition. If done right, it can lead to exciting times. I am not big on the idea of making money, but one does need a certain amount to sail through life comfortably. From setting goals to choosing the right investment avenue, being mindful about your financial actions is important.?

Here are a few points to be mindful about when you start getting serious about your finances and finally plan to start investing:??

Having & Setting Financial Goals: Whatever you do, always know your “why”. Simon Sinek wrote an entire book on it called - Start with Why. Once this is sorted, move on to the “What”. What are you investing for? Is it for an emergency fund, something big you want to purchase; like a car, a down payment for a house, funding your education, or ensuring a comfortable retirement? This will lead to the “When” - by when you will need the requisite amount and subsequently, what you can do to have this amount on time, from an investment perspective. Having done this, you would have defined your financial goals; which will help guide your investment decisions and keep you focused.

Understanding Risk and Return: When you invest you choose to take a certain amount of risk. No investment is risk-free. Beware of it and embrace it like an adult. The formula is, the higher the risk, the higher the possible returns and vice-versa. Investments that may yield greater returns come with baggage; known as increased volatility. Low-risk investments have a pull factor called stability, but often offer lower returns. You need to introspect and find out which of the two you are most comfortable with; or even better, strike the right balance between the two. This depends on your risk appetite and investment horizon.

Building an Emergency Fund: Before starting to invest, you must set up an emergency fund. This should ideally make up at least three to six months' worth of fixed expenses in an easily accessible account. This acts like a safety net and bails you out, should there be unexpected expenses; not everything can be covered by insurance. This initial exercise will ensure that? your investment portfolio in the pipeline? is solid and does not get disturbed prematurely.

Diversify to Mitigate Risks: "Don't put all your eggs in one basket” - is a very done to death caption but still holds true when it comes to investing. It just means investing across a substantial spread of asset classes, such as stocks, bonds, real estate, mutual funds and commodities. Having done this,? you will have? reduced the risk associated with any single investment significantly. It is a smart way to protect your investment portfolio against? potential losses, thereby increasing your chance of overall portfolio growth.

Choosing the Investment Options:? There are a wide variety of tried and trusted investment options, along with new avenues like cryptocurrency that one can choose from. They have their own pros and cons or advantages and risks. Here are a few popular options for beginners that you can kickstart your investment journey with:

1. Mutual Funds: These are no-stress products as they are managed by qualified professionals called fund managers. Mutual funds pool investments from multiple investors to invest in a particular fund made up of a portfolio of stocks, bonds, or other securities; often well diversified.
2. Exchange-Traded Funds (ETFs): Quite similar to mutual funds, ETFs offer a diversified basket of assets. However, ETFs, unlike mutual funds, trade on stock exchanges like individual stocks, offering liquidity and transparency. It is usually safer than picking out individual stocks, especially when one is a newbie.
3. Fixed Deposits (FDs): We all are well-acquainted with these. FDs are secure? and give you fixed returns through interest, on your savings. They are low-risk in nature, and are offered by banks for a predetermined tenure.
4. Public Provident Fund (PPF): Reminds you of salary slips and tax savings? Bingo! That’s where they often appear and what they help you achieve. Though the ones on your sal slip is PF and not PPF. THe difference, you ask? PPF is a government-backed investment scheme that offers tax-free returns and has a long-term focus. On the other hand EPF or commonly known as PF entails the government and your employers contributing to your EPF account. Both are great retirement options but the latter is only for salaried people, considering their employers meet the criteria to give out this benefit.??

Here are a few additional things to keep in mind when you are just getting started with your finances for the first time:

Developing a Long-Term Investing Strategy: You must have heard phrases like “timing the market”, “short term gains”. Steer clear of this kind of? “advice” and these complexities. Financial success, just like success with any other in life, is all about discipline, consistency, knowledge, and hard work. Plan well, think long term, stay still, let nothing bother or deter you. Be regular, irrespective of market conditions, form a habit of sorts around it if you can. Stay updated. Do not be impulsive and do not listen to people, goes for almost everything in life, if you ask me. Stay away from what's “trending”

Learning from the Masters: You could do some intel gathering through successful investors, read Warren Buffet and others. Read their articles, watch their videos. Read useful books like Psychology of Money. Money is a very psychological thing. Having the right mindset is imperative to how you’ll fare with your finances. Read other relevant books, attend webinars, see what makes sense to you and do not blindly follow people. Create your own unique investment approach from whatever you have learnt and liked.?

The Stock Market Conundrum - To invest or not to invest, that is the question. I really don’t need to half quote Shakespeare here to establish that everyone starting out is mired with this inescapable question. Let me just go right ahead and answer it: You should. Don’t read too much - go right ahead, open a demat account, watch their demo videos. Buy 10 shares of a big company that has been around since decades like HUL, Nestle, Bajaj Auto, Eicher - any product you use daily, whose parent company is listed, buy it. Keep it. Forget about it. Overcome your indecision and satisfy your curiosity, all at once. Either you’ll end up learning more and investing more over the years or will just make a pretty good profit eventually. You can’t really lose here. But you’ll have done something that will not let you down. It'd be better that a night spent getting drunk and remembering nothing of. It will not be a huge dent in your pocket. I started investing in the golden year of 2020. I am always at least 30-40% up across my 3 demat accounts (all opened for research purposes initially). I am not an ace investor, but I have no regrets at all.

Invest so that your salary doesn’t vanish into oblivion every month.

Invest if you are greedy and want to mindlessly amass wealth.

Invest if you have a family which needs to be taken care of.

Invest if you want to break the chains of corporate slavery start your own gig.

Invest if you like to gamble a bit, more in the stock market. Some of it will always be a gamble no matter how much you research.

Invest because life is unpredictable.

Lastly, invest because all these financial companies and listed companies need you.

?Start early, to make more. Start slow. Be smart about it. And yes, remember my “advice”.

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