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Things To Remember Before Investing

Mr. C.S. Sudheer | Updated On Thursday, October 20,2016, 11:39 AM
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Things To Remember Before Investing

 

Warren Buffett one of the greatest investors around, defined the art of investing, through a great saying.

Price is what you pay. Value is what you get.”

Yes….Warren Buffett, is an expert in the art of investing. But you don’t need to be an expert, to start investing. Investing is all about doing a few basic things right. But there’s something worrying you….You’re not rich. Where will you get the money to invest? Investing is not all about money. Investing is also about time. “The early bird gets the best worm.”

Start investing at an early age, to reap rich rewards from your investment. Want to learn more on investing? Simply go to the pioneer in the Financial Education Space. IndianMoney.com offers genuine, unbiased, free on-call financial advice to ensure that you make wise financial decisions. Just leave a missed call on IndianMoney.com financial education helpline 02261816111 or just post a request on IndianMoney.com website. 

You need a financial goal before investing

Before investing your hard earned money, ask yourself this question. Why are you investing? (What is the goal or objective of your investment?)

  • Are you investing your money, so that you can go on a trip abroad?
  • Do you want to buy a car?
  • Are you investing for your retirement?

The next question….How much time you have to achieve your financial goals? This is also known as the time horizon. Your goals are then divided into short term, medium term and long term goals.

  • You invest money, so that you can go on a foreign trip, one year from now. (Short term goal)
  • You want to buy a car, three to five years from now. (Medium term goal)
  • You invest for retirement, keeping a time horizon of 10 to 15 years. (Long term goal).

Diversify your investments

You must have heard the saying, “Don’t put all your eggs in one basket.” Diversification is nothing but spreading your investment, among different types of investments. When you lose money, in some of your investments….Well….some of your other investments give profits and make up for the loss. You enjoy the benefit of diversification. Diversify your investment portfolio, between debt and equity. When stock markets do well….Equity gives you good returns. When stock markets crash, debt protects your investment.

When it comes to investing….START EARLY

Finished your studies and just started working? Start saving from DAY 1. First save….Then invest. Why do you need to start investing, at an early age? Just three words, Power Of Compounding. You invest money to get good returns. Whatever returns you get, are reinvested to get more returns. Simple….Return on Return.

To enjoy the power of compounding, you need to give your investments, time to grow. The longer you stay invested, more is the time your investments have, to enjoy the power of compounding. You are soon on the path to riches.

There is no investment without risk

Investing is putting aside money today, to get a higher return in the future. To get a higher return in the future…you need to take risk. The rules of investing are simple, “Higher returns but at higher risk.” Yes…investing in equity (equity mutual funds and stocks)…is definitely risky. They even write, “Mutual Fund investments are subject to market risk. Please read the offer document carefully, before investing,” But what about the humble fixed deposit? Surely, there is no risk while investing in a fixed deposit? The money you invest is safe and you earn interest on this investment. You have forgotten something…..What about inflation?

Inflation is the general rise in the prices of goods and services, with time. Annual consumer price inflation, was around 5%, for the month of August 2016. It was much higher in previous years. The interest income you get from an FD, beyond a certain limit, is taxed. Inflation eats up, most of what is left behind. If the interest you earn from the FD, is not much above inflation, you get almost nothing from your investment. FD interest rates, have been falling in recent times.

Yes….every investment you make is risky. The degree of risk, depends on the type of investment. This is where risk profile is very important. This is nothing but the amount of risk, you are comfortable with. If you like to take risk in your investments for a higher return, then equity is just the right thing for you. If not, stick to relatively safer fixed income instruments.

Remember: “Risk comes from not knowing what you’re doing.”

Yes, investing might sound difficult, but it’s not. You require immense patience, discipline and knowledge of your risk profile. Then simply invest.

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Article Author

Mr. C.S. Sudheer

Mr C.S.Sudheer is a management graduate. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.

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