Beginning investors face many questions like when should you start investing? What should you invest in? How much money should you invest? If investing is so important to get ahead in life why does it seem so complicated? While it might seem hard to understand at first, it really doesn’t need to be complicated at all. What if you could get some tips that would almost guarantee success and put you on track to become a millionaire? These are eight of the best investing tips for beginners that can help you get your portfolio started and ensure its profitability until retirement.
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Tip 8: Start with Broad-Based Investments
One of the first questions a beginner investor has is what to invest in? How are you supposed to know what to buy when there are seemingly endless choices between individual stocks sector-specific funds in broad market funds. While there are many options it’s best to begin with something simple that’s easy to understand such as Nifty 50 companies. Even those who have never invested in the stock market have probably heard of the Nifty 50 Companies. Owning a share in these top 50 profitable companies is an almost foolproof way to invest if you’re essentially buying the overall stock market. With this your returns and risk will be about average. You might decide to stray from this a little bit by purchasing a low volatility or high growth variant which is also a great way to start buying and holding. This type of investment is a simple and proven strategy whether you’re investing one thousand rupees or one million rupees and is highly recommended by Warren Buffett.
Tip 7: Don't be Scared off by the Media
The media’s goal is to get more views which is accomplished with scary headlines and nerve-wracking stories. Seasoned investors know to ignore this for the most part, but it can be unsettling for those who are just beginning to invest. Your goal as an investor is to grow your money over time by focusing on things you can control such as your time horizon, risks, costs and taxes. When the headlines are scaring people about the potential end of the stock market, try to focus on the long-term picture and make sensible decisions. Take a look at history and you will see that the stock market has always recovered from any selloffs. Even though the stock market behaves like a roller coaster with many ups and downs, you won’t be injured if you don’t jump off. Try to stick to your investment strategy no matter what happens. Those who are unemotional during past recessions have profited nicely, while the ones who sold everything took the biggest losses.
Tip 6: Focus on your Savings Percentage
Beginning investors can be discouraged by poor market performance over a certain period of time. There have been many times when the stock market’s returns have been less than desirable for a short period of time. But your job as a beginning investor should be to concentrate on what you can control. Instead of focusing on market performance consider how much money you’re saving. If you’re doing it consistently and if you could save more, for long-term investors the biggest factors for success are staying invested and saving enough money. As a rule of thumb try saving at least 15 percent of your income or more if you had a late start or plan on retiring early. Even if the market performs poorly for a certain period of time, be assured by its long history of profitability.
Tip 5: Set Investment Goals
One of the most important aspects of an investing strategy is knowing your goals. How much money do you need to retire and when? How much money do you need to save each month to get there?
Lay out your short-term, medium-term and long-term money goals. A short-term goal might be saving enough for a vacation next year. A medium-term goal could be saving enough for a down payment on a house in three to five years. And a long-term goal could be relating to your retirement. Try utilizing a compound interest calculator with inflation to get an idea of how much you need to reach your investment goals. Having tangible goals will help you see the progress you’re making and it will give you motivation to stay the course and find out what you need to do to reach them.
Tip 4: Understand How Much Risk to Take.
Deciding how much risk is acceptable for your portfolio will depend mainly on how long until you retire. If you’re 30 or 40 years away from retirement, taking more risk in exchange for higher returns is usually worth it. Additionally you want to be comfortable with the risk and recognize the potential downsides. Younger investors generally have a higher risk tolerance because they won’t be using that money for many years. The downside to more risk is that at times the portfolio will perform very poorly. A more conservative and less risky portfolio will perform more steadily but with lower long-term returns. Understand how the risk of your investments will relate to your overall returns and ultimately how much you will end up with down the road.
Tip 3: Keep Costs Low
You can’t control how your investments perform but you can control how much you pay for them. As an investor of any level it’s very important to pay attention to the costs associated with any investment. These fees are usually in the form of an brokerage, which is how much the brokerage firm charges you to buy stocks. Consider what these two companies charge for an identical investments. Zerodha brokers charge 0 rupees, while traditional brokers charge around 0.5 percent for the exact same investment. With the one Lakh rupees investment, Zerodha would charge 300 rupees per year (Only annual maintenance charge with 0 brokerage) while traditional brokers would charge 800 rupees (Annual maintenance charge of 300 rupees+ brokerage of 500 rupees). With a one crore investment that’s a difference of fifty thousand rupees per year or four thousand rupees per month. That might not seem like a large amount, but investors often underestimate the ability of fees to eat away at your portfolio. That difference is multiplied as your portfolio grows and the fees could even end up being more than your monthly contributions.
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Tip 2: Automate your savings
An easy way to stay on track with your investment contributions is by setting up automatic contributions on a monthly basis. When the money is automatically taken from your account, you’re not tempted to spend it. Additionally the less you have to do the less overwhelming the whole process will be and the more likely you are to stick with it. Almost everyone who automates their investments will tell you that they hardly even realize the money is gone. Just think of how less likely you’d be to invest and how much more painful it would be if you had to manually transfer the money each month. Most people would either forget to do it or put it off to a later date that will never come or they would just hang onto it and spend it on something frivolous.
Tip 1: Start Now
Perhaps this is the most important tip that most people wish they knew at the beginning of their career. The biggest barrier to investing money as a beginner is simply getting started. Too often investors are scared off by the topic, because they don’t feel like they know enough about it or it’s not something they think they need to worry about until later in life. They might also feel like they don’t have enough to begin and it just isn’t worth it yet. You should begin investing as soon as you have your income and expenses in order. It might be a good idea to pay off high interest debt before investing. But the earlier you can begin the better. Don’t wait for the perfect time to invest because it just might never come. Time is your biggest advantage when investing, because it gives your money more time to compound. Even if it seems like you barely have anything to begin with, a quick look at some simple examples of compound interest could show you just how powerful it can be.
These tips will help you succeed not only as a beginner investor but over the course of your investing career. Focus on what you can control instead of what you can’t to avoid being emotional and invest no matter how the market is performing. Automating this will make the entire process much easier to continue over the long run ensuring a prosperous retirement.
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