Investment should be done after thorough research and invest in the instruments that are easy to understand with sustainable growth. First-timers can take guidance from a financial advisor to lay out a road map before you start investing.
When someone starts earning and becomes financially independent, he starts to spend and save as well. The spending and saving behavior, however, differs from person to person. While some overspend with financial independence, some become more responsible and start saving and investing early.
One of the secrets of earning higher returns on investments is to start early. With a difference of just 5 years in the tenure of investment, the investment amount could double. Hence, it is always suggested to start early and develop the habit of saving and investing – be it small or large — in a planned way.
If you are starting investing for the first time, here are 5 tips for you to consider;
1. Planning – Plan, before you start investing. This is important because that way you will know why you are investing. If you have the clarity in why you are investing you will know how much and where to invest your money.
Experts say investment should be done after thorough research and invest in the instruments that are easy to understand with sustainable growth. First-timers can take guidance from a financial advisor to lay out a road map before you start investing.
2. Why should you start early – The benefit of compounding and accumulate considerable wealth is maximized when you start the investment process early, even with small savings. If you start early, and with the help of compounding you end up accumulating wealth even without a huge investment amount or savings. To start with putting away and investing even 5-10 per cent of your salary can go a long way.
For instance, if you earn a salary of Rs 30,000 per month and plan to invest 10 per cent of it, you will be investing Rs 3,000 per month. If you start investing in your late 20’s through SIP in mutual funds, for the period of 35 years you would have invested Rs 12.6 lakhs approximately, and your money would have grown to Rs 1.9 crores, approximately, with an expected annual return of 12 per cent. Comparatively, if you invest that money in your mid 30’s, it would fetch you Rs 56.9 lakhs approximately, by investing 9 lakhs in 25 years.
3. Taking calculated risks – You need to take some risk to get higher returns. Hence, to achieve your financial goals, take some calculated risks, but not undue risks.
Investments in low-risk assets would always give you lower returns, such as bank FDs. Even though these investments are safe and secure, however, when adjusted for inflation they have given negative returns, which means in the long term you might just lose the value of your money
4. The difference between short-term and long-term investments – For smaller and immediate financial goals, such as creating an emergency corpus, buying a two-wheeler/car, investments in short-term funds is what you should look at. However, to meet large and long term goals, you need to make long-term investments to beat inflation. Hence, while investing do not mix investments as then you might miss both the goals.
5. Avoiding debt-trap – Most people are now seen buying anything and everything on EMIs without waiting for accumulating money to purchase expensive things. Note that, not maintaining these EMIs properly can lead you towards a debt-trap. Most people give in to the temptation of borrowing money, and not notice the high-interest rate which comes with it. This also includes the excessive usage of credit cards even for small basic consumption.
Keep in mind, while using credit, regularly pay your credit card bills and loans. Also, see to it that your total credit including EMIs, credit card, etc. should not be more than 40 per cent of your total income.