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Want to invest but don't know how to begin? Then read this.

By Shrestha Saha

22nd Jul 2022

5 mins read

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‘Kitna profit milega?’ It is always the first question an individual asks when you talk to them about investing in the securities markets.

While it is a valid question, it shouldn’t be the only factor considered when investing in the financial markets. Profits are the end motive of investments. The right mindset, goals and understanding of the investment process is a crucial practices for gaining profit.

If you have already begun your journey of financial investments, we would like to congratulate you on the same. We know there are going to be a lot of apprehensions, questions and doubts. To help you follow the right mindset when investing, we have prepared a list of 11 questions you need to ask yourself. We are just a comment away if you cannot find answers to either of them.

Is FOMO guiding me?

Suppose a new financial product is introduced in the market, and everyone around you is buying it. Are you trying to follow the herd? If yes, then back it with product and market research too. The best investments do not happen by following the herd and buying the stock at the same or higher price, they happen after you research and time your investment properly.

How do I get started with investing? Where should I put my money?

Many people believe that investing serves only one purpose. But before you invest your hard-earned money, you should understand the four types of money people have in their life. Each of these necessitates a different approach to investing.

  • Emergency Reserve Fund
  • Short-Term  Fund
  • Long-Term Financial Stability Fund
  • Tax-Saver Fund

What is my investment purpose?

Before making investment decisions, the most essential question you should ask yourself is, "What am I seeking to accomplish?" Your investment opportunities will be vastly different if you save for a pension versus a down payment on a house, for instance. So, ask yourself, "Will this investment help me buy my favourite car earlier? Or Will it help me fund my college fees without taking my parent’s help?"

Am I earning significantly higher than the risk-free rate?

If a financial instrument, particularly a debt offering, guarantees significantly higher yields than the current risk-free rate and does so in a secured and consistent manner, it is a direct red flag.

Debt returns that exceed the risk-free rate are risky. In a low-interest-rate situation, there is a desire to push the boundaries of credit risk or duration risk to gain a little more yield. Don't do it. Remember that capital safety is the most important factor in debt investing.

What is risk tolerance, and how can I determine my own?

Risk tolerance is determined by how much chance you are willing and able to take. A general rule of thumb is that when you're up at night worrying about your investment portfolios and suspecting that a down market will cause your portfolio to fall too far, you're probably carrying too many potential losses.

On the other hand, if you're concerned about missing out on expected profits, your portfolio may be too conservative. So to properly recognise your risk tolerance, answer these questions: How do you feel when you hear the word "risk" while investing? Do you picture the "rush" of investing? Do you see it as a high-return opportunity? Do you think that risk is just a necessary component of the investing method? Do you worry that you will be left without anything?

Then consider your behavioural patterns, such as what actions you'd take if you suffered a major investment loss or your choices over the years when markets deteriorated.

How can I reduce my risk when investing?

The key to reducing risk is to diversify your investments. This is a strategy in which you invest your portfolio in various investments such as shares, debt instruments, and cash (and/or real estate). All of these investments respond differently to economic changes. As a result, diversifying your portfolio is the key to maximising return while minimising risk. It's also the ideal way to safeguard your finances in a crisis.

I constantly hear that investing is a long-term activity. Why so?

Investing can be done for both the short and long term. However, the chunk of the money we save will not be required until we stop working, which will be somewhere around 20 and 30 years later. During this time, wise investors prefer equity-based alternatives to beat the increasing inflation. While stocks have a bad reputation for wide fluctuations, this is only true in the short to medium term, and historically, stakeholders have outperformed inflation.

What is the most essential investing rule?

“To acquire knowledge, one must study, but to acquire wisdom, one must observe.” Most financial investments have a certain percentage of risk. As an investor you should understand your risk appetite and then invest. You can invest the idle money you have after creating the emergency funds.

Everyone says, "Do a SIP, SIP is awesome." What exactly is this thing? Should I start a SIP?

A Systematic Investment Plan is simply a method of saving and investing a set amount every month over a fixed period of time. It allows you to automate diligent investing, start soon, and invest even when you only have a limited amount of cash to spare.

If you want to invest in a product that has-

  • Lower risk than a SIP
  • 10% stable returns
  • Guaranteed return of principal
  • Only 7 days of lock-in
  • Daily interest credit

Then check out Spenny Wise. We are sure you will love it.

What additional value will this stock add to my holdings?

You don't buy the product because it was just released. It should fill a gap in your holdings and provide exposure that you do not currently have. Are you investing in a third tech fund, tripling your tech exposure? Or are you purchasing something completely new? Don't buy mutual funds the way you shop clothes.

What should be the duration of my investment?

Usually, the longer you invest, the more risk your portfolio will be able to handle because you have more chance to recuperate from an error of judgement. Also, if you're planning for retirement and are still decades away from it, investing in something that is not liquid (such as real estate) may sound right.

However, if you’ll need the funds within the next few years, your investment must be liquid (bonds, stocks, CDs). So, before investing, ask yourself if your funds make sense in long-term illiquid assets and how much of your funds should be more easily accessible in case of emergencies and urgent cash needs.

These were the list of questions that we thought would help you begin your investment journey. For a simple, quick and hassle-free investment visit Spenny. If you still have any more questions about investments, please feel free to mention them in the comments, we’d be happy to help you out.

Till then, invest safely.

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Made with ❤️ in India