How to start investing
On a high level, investing is the process of determining where you want to go on your financial journey and matching those goals to the right investments to help you get there.
This includes understanding your relationship with risk and managing it over time. Once you understand what you want, you just have to jump in.
You can decide to invest on your own or with the professional guidance of a financial planner. Below we discuss in detail each of the key steps to help you get started with investing.
1) Decide your investment goals.
Investment goals address three major themes regarding money and money management. First, they intersect with a life plan that engages our thought processes in unexpected ways. Second, they generate accountability, forcing us to review progress on a periodic basis, invoking discipline when needed to stay on track.
2) Select investment vehicle(s)
An investment vehicle is an instrument, product, or container that houses a particular investment strategy that allows investors to earn a positive return through income and capital gains. Investment vehicles include individual securities such as stocks and bonds as well as pooled investments like mutual funds and ETFs.
3) Calculate how much money you want to invest.
FV = Future value or the amount you get at maturity. For example, you invest Rs 1,000 a month in a mutual fund scheme using the systematic investment plan or SIP route. The investment is for 10 years, with an estimated rate of return of 8% per year. You have i = r/100/12 = 8/100/12 = 0.006667.
4) Measure your risk tolerance.
To better understand your risk tolerance, ask yourself questions like these and think about your behavioral tendencies—such as what actions you’d likely take after experiencing a significant investment loss or what decisions you’ve made in the past when the markets took a turn for the worse.
5) Consider what kind of investor you want to be.
Show me an entrepreneur, and I will show you someone looking for money. While it may be hard to build a better mousetrap, it seems to be even harder to find someone to invest in it.
Business founders are continuously looking for the right connections, be it the right networking contact or the third party with credibility that can introduce them to the right person who has money burning a hole in their pocket. However, at the end of the day, it’s less about who you know and more about what you’ve got.
6) Build your portfolio.
It aims to maximize returns by investing in different areas that would each react differently to the same event. There are many ways to diversify. How you choose to do it is up to you. Your goals for the future, your appetite for risk, and your personality are all factors in deciding how to build your portfolio.
7) Monitor and rebalance your portfolio over time.
Rebalancing refers to the process of returning the values of a portfolio’s asset allocations to the levels defined by an investment plan.
Those levels are intended to match an investor’s tolerance for risk and desire for reward. Over time, asset allocations can change as market performance alters the values of the assets.
Rebalancing involves periodically buying or selling the assets in a portfolio to regain and maintain that original, desired level of asset allocation.
What to invest and what strategy to follow
Top Investment Strategies for Beginners
1) Buy and hold
A buy-and-hold strategy is a classic that’s proven itself over and over. With this strategy you do exactly what the name suggests: you buy an investment and then hold it indefinitely. Ideally, you’ll never sell the investment, but you should look to own it for at least 3 to 5 years.
2) Buy index funds
This strategy is all about finding an attractive stock index and then buying an index fund based on it. Two popular indexes are the Standard & Poor’s 500 and the Nasdaq Composite. Each has many of the market’s top stocks, giving you a well-diversified collection of investments, even if it’s the only investment you own. (This list of best index funds can get you started.) Rather than trying to beat the market, you simply own the market through the fund and get its returns.
3) Index and a few
The “index and a few” strategy is a way to use the index fund strategy and then add a few small positions to the portfolio.
For example, you might have 94 percent of your money in index funds and 3 percent in each of Apple and Amazon if you think those companies are well-positioned for the long-term.
This is a good way for beginners to keep to a mostly lower-risk index strategy but add a little exposure to individual stocks that they like.
4) Income investing
Income investing is owning investments that produce cash payouts, often dividend stocks and bonds.
Part of your return comes in the form of hard cash, which you can use for anything you want, or you can reinvest the payouts into more stocks and bonds.
If you own income stocks, you could also still enjoy the benefits of capital gains in addition to the cash income. (Here are some top dividend ETFs and high dividend stocks you may want to consider.)
5) Dollar-cost averaging
Dollar-cost averaging is the practice of adding money into your investments at regular intervals. For example, you may determine that you can invest $500 a month. So each month you put $500 to work, regardless of what the market is doing. Or maybe you add $125 each week instead. By regularly purchasing an investment, you’re spreading out your buy points.
CONCLUSION
Investment is important to achieve individual goals. Investment means we have money, then we need to make analysis to invest the money, and expected to get return in future.
If the investment are run early, then we will make a lot of profit if the investment run well, if not we will lose all of the investment need to start from earlier.
Apart from that, first thing first we must set an investment plan to make the investment run well. From that, we can know what we will face in future, what the risk needs counter, what economy is going and many more. As we also know, there are also specific places for investment to be done. It will involve capital market, Bursa Malaysia, equity market, debt market and many more.
So, we need to know where we should invest our money whether to invest in high risk market or lower risk market to gain return in future. Usually, high return will be associated with high risk.