Investment Basics for First Time Investors

Planning to invest in stocks, bonds, mutual funds or any other investment plan for the first time? If so, congrats! You are taking an important and sensible step in planning your future growth. This article presents some important tips you need to follow as a first-time investor.

Health insurance and have emergency savings
Before you start investing, make sure that you have enough emergency savings and health insurance for you and your family. This is because investment is meant for growing your surplus in the long run. Once invested, the money cannot be taken out before the period of maturity. Thus, it is better to have sufficient emergency savings and a health insurance cover before you start investing.

Set your goals
It is time to have a check-out of your finances. By this, you will get an accurate picture on how much money is required to reach your goals and how much money to invest over a time horizon. Be clear about your current financial situation and list your goals such as saving money for kids’ education, vacations, down payment for home loan, home renovation, car purchase, retirement savings, etc. All this will help you plan your investment.

Figure out your time-frame
Fix a time-frame which can be practical and reasonable according to your investment goals: a short-term investment plan of 1-2 years, medium-term of 4-5 years and a long-term of 7-10 years. If you fix a time horizon for each goal, it will help you find how much money you need to invest every month.

Choose your investment option
You need to choose your investment option that fits your investment plan. It must be based on the time horizon to reach your goals. Let’s consider examples in terms of goals.
Investing for saving for holiday vacation is a short-term goal of 1-2 years. For this, you may consider investing term deposits in bank that give you the reasonable returns.

Investing for down payment for home loan, kid’s education, etc. are medium-term goals. For this, you may consider investing in equity mutual funds.

For retirement planning you could go for investment over a period of 10 years or longer.

The examples are illustrative and only meant for understanding. Choose your investments in asset classes carefully by understanding the risk and the return of investment.

Diversify investments carefully
When planning to invest your money, always consider diversifying the risk of investment. It means minimizing risk by investing in a variety of assets. If one of your investments performs badly, the other investment plan can protect your principal amount along with returns. Mutual funds are the best option for increased diversification. So, as a first-time investor, it is better to invest in a professionally managed mutual fund.

Do not confuse on what to invest in and don’t get carried away by emotions – fear and greed.

Points to remember:

  • Invest in an asset class only if you understand the investment plan
  • Match your investments and goals
  • Beware of past performance
  • Understand risk and return
  • Diversify risk in investments
  • Manage and monitor your investment and returns
  • Stick to your investment plan

By following these simple steps, you will be able to accumulate reasonable amount of money to meet your future needs.

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