Many people who are coming in the age between 20 to 30, refuse to do investment thinking that it's not the right time for investment. However, this is not so true.
In fact, the analysts say that the perfect age for investment starts at 21. There are lots of reasons behind it. Firstly, investing at an early age allows a person to save more money than a person who starts investing at 30 or 35.
When asked, these people give silly reasons, they say they do not invest much as they haven't done enough groundwork. Also, they fear investing in stocks, bonds. Some people even consider saving as equal to investing.
Saving your money can help you to set aside cash if an emergency comes. On the other hand, if you want to generate wealth for the future, investment is the key.
Investment can help you achieve your financial goals, such as house planning, retirement, education, vehicle or more. It also provides you with comfortable retirement down the years.
Also, building an investment habit makes your money grow on a compound basis, providing you with a higher gain on the invested capital.
What is a Good Investment?
There are two types of investment; good investment and bad investment. A good investment depends on several factors; one such factor is risk and return.
Characteristics of a Good Investment
Check Good Financials
Ever wondered why some stocks offer higher value than others? The answer is the company's financial performance. A company’s share price heavily depends on its financial performance. Analysts use several ratios to determine the correct stock price. Knowing the evaluation of stock price will help you to identify which stock performs better in the long run.
Liquidity
Nowadays, new investors are looking for liquid assets. This is because liquidity allows them to exit at their will. See, different investments have different liquidity. Large-cap stocks and ETFs are traded daily in the exchange.
Hence, it is suggested to add both assets to your portfolio; liquid and illiquid both. Illiquid assets are not listed on the stock exchange and hence they are less volatile than liquid assets. Adding illiquid assets to your portfolio prevents you from taking any wrong decisions.
Fair Value
It is extremely important to know the fair value of shares as it will help you to know the actual value of an asset. Good investments are often sold at higher prices as they are high in demands. But, if you overpay for such investments, you may put yourself at a disadvantage.
To determine the fair value of a stock, investors analyze historical data, charts, and observe different patterns. They do it to compare with the current valuation.
Diversification
Diversification is a simple way to turn your investment into the best investment portfolio. Diversification simply means the allocation of different assets into your portfolio. It's a necessary step to keep your investment safe as it helps you to achieve high returns and also it makes you suffer from a minimum loss if the stock market is volatile.
Types of Investments
There are multiple investment options available in India.
Stocks
Fixed Deposit
PPF (Public Provident Fund)
Index Funds
Government Securities
What amount Should you Invest in Securities?
There is no ideal amount for investing. You can park your savings into an investment that depends on risk appetite; how much risk you are willing to take.
Investing for the long term provides you with the advantage of compounding as it will help you achieve more interest in the invested amount. This is because investing for the long term minimizes the erosion of your hard-earned money.
If you are a beginner who aims to invest at an early stage, investing in stocks may look a little bit risky, but if you do proper stock market research and take investment advice from a renowned stock broker, you could start trading while keeping your savings aside.
Investment planning while sitting at home
Build a Trading Plan
It is important to always make a plan before starting investing in stocks. Do a bit of research, get knowledge about stock, its fundamentals, a company’s performance. You should know, which is the right time to buy a share, book profits and minimize your losses.
Still get difficult to understand the terms of stocks, go for the best stock broker.
A right stockbroker like helps you to get the right stocks that are based on your risk appetite.
Track your Performance
Needless to say, the stock market is dynamic in nature and therefore it is important to revisit your stock market trading strategy and modify it accordingly. This will help you learn more about the stock market like ups and downs, how to deal with the stock market when it experiences a downtrend.
Understand the Company’s Fundamentals
Many investors prefer to buy the stocks which are most popular in the market. However, this is not the right method to select a stock. Firstly, it’s better to understand a company, its performance, market reputation before purchasing a stock.
Avoid Overtrading
As a beginner, the biggest mistake you can make is to overtrade in excitement. Don't be in a hurry to buy loads of stocks at a time. Instead, pick a few stocks that come under your budget, try to analyze them completely.
This will help you to gain a lot of knowledge about stock market trading such as how the market works.
After a few months of trading experience, start adding more stocks to your portfolio. This time you are more experienced than before and therefore you won't commit any mistake as you did in the past.
Keep Emotions Aside
While trading in the stock market whether it is for the long term or short term, it's better to keep your emotions aside. It’s natural to be on high while making money and feel devastated when experiencing losses. Therefore, it is advised to stay neutral in both cases.
Don't panic even if the situation is not in your favor. Instead, try to understand the cause of losses and soon you may overcome this bad situation too. Just follow the rules that are mentioned above and see the magic.
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