As you grow old and start earning, one of the most important thing that can come to your mind is how to start investing. As you start realizing the importance of investing, there is one thought which is always pondering over your mind – which I call The “What if” situation – the fear of losing money instead of getting returns.
You would like to read the below articles which will help you with this situation:
I am trying to analyse a few things in this article which you need to take care while investing and will take the form of strategies for successful investing:
Depending on your needs and individual goals, a particular type of investment may or may not suit you. Different people have different needs and hence, different people have different investment modes to suit their needs. It also depends on the stage that they are in at the moment in their lives.
Having said that, each investment type has its own level of risk and reward. A basic rule of the thumb works out here which underlines that the greater the risk, greater is the potential reward. And vice versa.
One more important thing to take care of here is your own temperament – if you are the ‘too worrying’ type who is always thinking about only one thing – “My investments might occasionally go down in value,” you should have less risk investments on your portfolio.
Some Investment options – A Broad Description
If you talk about the traditional investment options, Gold and Real Estate top the charts, the reason being that they are not liquid and are always in your possession in the physical form. There are other long term national forms of investment like PF, PPF, NSCs and Post Office Savings that help you save, besides offering tax benefits.
When it comes to real financial investments, there are three main asset classes: Cash, Bonds and Equities.
- Cash – Having cash at hand is good for an emergency fund or a short term goal like some vacation, but over the long term, this is not very good as you may find the returns to be quite disappointing over the long term which anyways does not make much sense taking into account the inflation.
- Bonds – Bonds can provide better returns compared to the cash lying in the bank accounts but cannot offer the same level of security as bank accounts. Although bond funds do not have as much growth potential as stock market investments, they tend to be less volatile and keeps your principal secured. Investors often opt for bonds when they need to reduce risk – mostly towards the years towards their retirement.
- Equities – Equities is a way of investing directly in the markets and offer the best growth potential over the long term, but you also need to be aware of the face that there may be periods when your investments take a complete downfall.
As time passes by, checking your portfolio on a regular basis should be made a practice as it would help you to make sure that it still suits your long term strategy and if needed, you can make a change in your investments depending upon your situation.
If a particular investment has done remarkably well, you may find that it now accounts for a disproportionate share of your overall portfolio and it calls for a rebalancing. Also, you may need to keep changing the proportion of your investment modes from time to time to suit your needs and situations – for example, you can take more risk when you are young and have a risk taking capability, and then as you get aged and near your retirement, you can reduce the amount of risk you are exposed to.
You would also like to read: When is the Best Time to Invest?
The worst mistake a private investor can make is to be sucked into markets when they are high and the prevailing mood is the most optimistic, only to then get shaken out at times like this when prices are falling and the outlook is uncertain. It normally takes many years to recover from this experience.
Keep Your Cool – That’s the Key!
If you adopt a strategy for long term investments, and are confident about your long term strategy, you do not need to react to short term movements in the market which cause havoc all around. It is important to be patient with the stock market and to avoid knee-jerk reactions and rash decisions in response to bad news.
I hope this article helps you in deciding which category you fall in, identify your needs and invest accordingly.
Do share your experiences with the investments you have made in the past and your learnings from it, we would love to hear and get into a discussion with you and the other readers in the comments section below.