Whether you have inherited a large sum of money, are making a lot from your successful business, or are saving a fraction of money from each paycheque, one question might be on your mind – How to invest?
Thankfully, learning how to invest is simpler than most people think. You don’t have to be an investment trader to become a successful investor. Truth is; how to invest is not difficult, the difficulty lies in where to invest.
While it is true that the best time to start investing was ‘yesterday’ and the next best time is ‘now’ , don’t feel rushed into making investments that you don’t understand. Following are some tips that will help simplify investing for you:
I cannot stress how important it is to know your goals. What is it that you want? Whether you want to save for a vacation, an education, a house, or whatever; your goals should be set accordingly. Once you know your goals, investing becomes simpler. For instance, if you want to save for your vacation which is a year from now, you can invest in debt funds. Or if you are saving for an emergency, you can invest in some liquid funds. If you have enough time and you want to save for a house, there are equity funds. The crux of the matter is to invest as per your goals. Don’t have the ‘herd mentality’ and blindly follow others. It’s critical to understand that we all have our financial goals and, therefore, should invest accordingly.
For our Independence Day and Raksha Bandhan, several brands had listed their products on sale. There was sale everywhere. It was a nice way to save money by buying the products (which we needed) during the sale, wasn’t it?
But think about it, shouldn’t we do the same when the market comes down? A lot of people tend to leave the market or stop investing when there is a fall (or even a correction). That’s where they make a mistake. That is the time when one would get good value for one’s purchases. It is like a sale period in the market.
Investing in real estate is a great option. Correction: was. Not only does real estate lack liquidity, but the Return on Investment (RoI) also isn’t much. Even Public Provident Fund (PPF) is a better investment option (in terms of returns as well as security) than investing in real estate. There’s a reason why Albert Einstein said that compounding is the eighth wonder of the world , instead of appreciation. While a real estate property may appreciate, compounding gives more. A decent equity fund can easily give you a 10% return (at least). When compounded over 20 years, the returns would be humongous (speaking in terms of percentage).
It reminds me of a joke my Economics teacher shared with the class:
A man was invited to a Winery Tour for a price. At the Tour, he took a seat in the first row. Before the start of the event, guests were served with their locally manufactured wine, starting from the back row. By the time they reached the front row, they went dry.
Cursing his luck, he moved to the back row when they said they would be serving the guests with a Hybrid Wine. This time, they started from the front row. Again, they finished their casks before reaching the last row. Exasperated, the man left.
He later learnt that everyone at the event was offered a bottle of each wine at a discount of 50%.
The moral of this joke is that when you invest in the Mutual Funds, Shares, etc., you get rewarded if you have patience.
To conclude, not enough can be stressed on how important it is to invest. Having said that, there is no better investment than investing in yourself. It could be in the form of getting an education, acquiring a new skill, hiring a coach, or taking up a course.
Also, if you are ambitious about achieving financial freedom, then choose wisely how you spend your free time.