how to start invest money

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5 Step by Step Processes on How to Start Invest Money Wisely

Investing may appear to be overwhelming from the starting point, particularly in the event that you start when the market is experiencing a crash, yet it doesn’t need to be an alarming trial. If you do your research and due perseverance, you should be well headed to a powerful financial future. Would you like to figure out How to start invest money wisely and where to start? We’ve assembled this guide for beginners to assist you to grow your hard-earned money, even when the market gets unpleasant.

how to start invest money
How to Start Invest Money

Here are 5 Steps Processes on How to Start Invest Money

Step 1. Understand Which Type of Investor You Are

Before you start investing, you need to know how you want to invest. You can hire a hedge fund manager or consider going all-in by inactively putting resources into list assets through a Robo guide, or you want to start investing by yourself with proper research and analysis.

There are generally three types of investing styles.

1. DIY Investing

DIY or “Do-It-yourself” investing is a more hands-on methodology. It requires you to do all research by yourself. You will also need to monitor your stocks consistently, which can be time-consuming. On the other hand, it implies you have complete authority over what is in your portfolio.

If you want to invest yourself, then find a stockbroker and open a trading and Demat account. Zerodha or Upstox is our suggested stockbroker, as it offers zero brokerage on delivery trade and brilliant help. When you have an account open, you can start purchasing and selling individual stocks all alone. You can also invest in an Index fund (ETF), which tracks a stock index like the Nifty-50.

2. Passive Investing

The “buy it and forget it” approach of investing is for those who don’t have the time or interest to do all the research. Research and analysis are hard to work for themselves. There are a ton of alternatives out there that you can hire somebody to invest for you. You can invest in a mutual fund or Exchange-traded fund(ETFs) through a Robo consultant.

If you’d prefer not to be too engaged with the investing process, then you’ll probably utilize a Robo consultant. Those platforms accomplish all the work for you whenever you’ve addressed a couple of questions concerning your investing goals and how much risk you want to take.

3. Getting a Stock Consultant

The third style is a combination of DIY and passive investing. Hiring a stock consultant or signing up for stock picking services can be an approach to take help and choose which stock to invest in. You will still need to have your trading and Demat account, yet you can leave the tedious examination to other people.

Step 2. Choose an Asset Class that Suits Your Risk Tolerance

When you have an account set up, either with a broker or a fund manager, you can start investing. This can be an overwhelming part. There are a ton of investment options, contingent upon your risk appetite.

Generally, the more risky an investment is the higher the return you get. While it might be tempting you to invest in riskier stocks, Which is wrong, the best practice is to invest in a variety of different asset classes. It is called risk management.

An “Asset Class” is a gathering of similar kinds of investments. You can put your money into one asset class or many. A blend of asset classes, or diversification, gives you a balanced portfolio which will help you in a bad time of the stock market. An example of a diversified portfolio is investing in a Gold, mutual fund, owning a variety of individual stocks across several sectors (like Healthcare, IT, FMCG, Bank & Finance, and Retail), and also owning and renting out a few real estate properties, etc.

Here are the basic asset classes for investors based on how risky they are:

  1. Cash: This also includes cash equivalents. Money is viewed as the most secure investment since its worth is generally consistent, in any event, when considering inflation. For a simple method to grow your money, invest in interest-paying savings accounts like Bank FD, Post-office RD.
  2. Bonds: Also called debt fund or fixed income. Here you give a loan to a government or organizations. They paid you interest consequently. Examples include mutual bonds and certificates of deposit.
  3. Real Estate: This is when you own actual property. You can also put your money into a REIT and own a segment of a property, keep in mind that real estate can be a big-time commitment.
  4. Gold: Investing in gold is not like buying stocks or bonds. You can take physical possession of gold by buying either gold coins or gold bars. You can buy bullion or coins from some banks, dealers, brokerage firms. One tip for all men who read this article, buy gold jewelry for your wife, which will make your wife happy along with your investment purpose.
  5. Stocks: This is also called equities or when you own stakes in an organization. This is probably what most people think of when they consider investing. However, remember that the riskiness of stocks varies from company to company. Younger companies may be riskier. However, a well-established company could also go bankrupt due to unexpected changes or sudden lawsuits.
  6. Futures and Other Derivatives: This is when you try to predict or speculate on the future price of an underlying asset. It sounds complicated but essentially it’s a contract that obliges two parties involved to buy and sell an asset (such as oil, gold, or share, etc) for a predetermined future price and date.
  7. Commodities:  Just like real estate, commodities are to own a physical thing — be it oil, natural gas, cotton, gold, silver, etc. You can trade them, but thankfully, you rarely have to take possession of them. There are a lot of different ways to buy and sell commodities, including futures contracts, or investing in an ETF.
  8. Other Alternative Investments: Since you need to have a diversified portfolio, you can also consider alternative investments like fine art (artistic work) or lending to small companies via a peer-to-peer lending platform. These can be an incredible addition to your portfolio, although they have their own set of risks to consider.

Step 3. Set a Deadline and Choose an Investing Goal

Now you have a better knowledge about the type of asset classes you can put your money on. Now is an ideal time to decide your financial goals. What are you saving and investing for? What amount will you need? In case, you want to invest for your children’s future studies, you’ll need a different amount in comparison to in case you want to invest for your retirement.

Short-term investing 

If you know that you will require the money in a couple of years, at that point your strategy will be a little different. Normally, this is the point at which you purchase stocks whose profits are expected to outperform the market in general in a short period. This is called growth investing. Some of the short-term investing strategies include investing in a debt fund or putting your money in an FD account.

Pros of Short-Term Investing
  • High-liquidity.  Your money is not stuck in an account for a set period, making it easy to withdraw the funds when you need them.
  • It can be low-risk. Depending on the type of investment, short-term investing can be low risk. Example – Bank FD, Mutual Debt fund
Cons of Short-Term Investing
  • Low-return. Because your money has only been invested for a short period, you’re unlikely to make a big return on your money.
  • Higher tax bill. Depending on the investment, you may have to pay more taxes.

Long-term investing 

This is also called Buy and Hold investing and is probably the most widely recognized investing practice for things like retirement. You know you’re in it for a long time. This methodology includes purchasing stocks now and holding them for quite a long time when they will ideally be worth more. Other long term investing strategies incorporate land, real estate, gold, etc.

Pros of Long-Term Investing
  • Less Risky. Holding a stock for a long time means you have more time to recover from a sudden crash in the stock market.
  • Less Stressful. Longer investments are often less stressful because you don’t need to follow markets as closely on a daily basis.
Cons of Long-Term Investing
  • You Need Patience. It takes a long-time to see a good return on long-term investment, so you’ll need to be patient.
  • Less Control. Because your money is invested for a longer time, it will be a long time before you will see your money again.

Step 4. Define Your Investment Budget

Budgeting may get criticism, and possibly not every person ought to have one. In reality, if you want to become an investor, having a budget plan can be useful in saving cash to use for investing. When making your budget, make sure to include plenty of money for your investment.

Now, there are a lot of techniques for setting up and maintaining a budget. It doesn’t need to be advanced science. You can utilize a spreadsheet and simply a paper and a pen. Or you can use web services like YNAB, Quicken, which do the heavy lifting for you.

Step 5. Reduce Charges and Fund Expenses

Investment costs — such that, fees/charges — can remove a weighty lump from your profits. So ensure you’re not getting ripped off.

There are various kinds of expenses — everything from account maintenance charge to mutual fund loads. There are numerous approaches to cut-down them or even avoid them by and large.

Each type of investment carries its own set of charges. However, here are the some common charges you’ll see:

  • Account Maintenance Charge: Typically, an annual fee below Rs 1000/-. This fee is often waived once you hit a minimum balance in your investment account.
  • Commissions: A flat amount per trade or a flat amount plus a percentage per trade. This amount will vary depending on your broker and the funds you invest in.
  • Mutual Fund Loads: Either front-end, back-end, or a combination of both. These can sometimes be waived if the funds are held in brokerage accounts with the same broker.
  • Management or Advisor Fees: A fee paid to an advisor who manages your accounts. This could add up to thousands of rupees per year, all avoidable if you manage your own account instead.

And if you’re looking for a fee-free stockbroker, you’re in luck. The competition in this space is heating up, which means some brokerages are slashing their fees to zero. Zerodha and Upstox have been a pioneer.

Consider These Factors Before You Start Investing

Start to invest is a shrewd decision, but it is complicated too. It’s not as simple as “start investing as soon as you can”. There are other financial steps you need to take first before start investing.

  1. Get an Emergency Fund– Having an emergency fund in your bank account is a huge financial priority. You need to have a half year of everyday costs tucked away. Crises can happen any-time, and having the cash-flow to manage them is a need. You would prefer not to take your investment to manage a vehicle repair or a medical clinic bill.
  2. Pay High- Interest Debt – Other monetary needs could include paying down high-interest rates. If you have a debt that has a higher loan cost than your investment return, you’re losing money every day you convey the debt. So it works in support of yourself to settle down high-interest debt as soon as possible.
  3. Age – Another important factor is your age.
    • If you’re 30 years old – You have a couple of a very long time before you retire. You can play with high-risk long-term investment, for example, stocks that would be too risky for somebody on the cusp of retirement. After all, stocks can lose their worth rapidly, yet if you have 30 additional years before you need that money, you can afford to take that challenge.
    • If you’re closer to retirement age – You want to focus on maintaining what you’ve already got. A more secure, steadier investment particularly where there are dividends included is a superior decision for you.
  4. Compound Interest: Time is in your favor
    Thanks to compound interest, you are bound to bring in more money the sooner you start investing. Here’s the reason: Let’s say you’re 30 years of age, and you can arrange Rs 10,000/ – every year to invest. That is the money you may have amassed from occasion rewards from your boss. If you manage to save Rs 10,000/ – consistently for the next 30 years, when you’re 60 and prepared to retire, you’d have simply made Rs 3,00,000/-. However, if you put that cash into something with a 7% compounded yearly return, you’ll have made Rs 10,10,730/-. More than Rs 1 million! or on the other hand, if you take some challenge/risk and put money into such stocks that can give 24% or more yearly return then your corpus will be around Rs 3,27,47,363/- more than Rs 3.25 crore. If you somehow managed to increase your monthly contribution, you’d see significantly more money when it’s time to retire. While millennials are entirely ready to exploit compounding and anybody can benefit.

It’s essential to remember that investing comes with a risk, so make sure just to put money that you won’t require in a couple of months’ time. Stocks can be unstable every day, but you’re more likely to make higher returns in a long time if you invest than if you don’t invest.

Start Investing Today

Rather than thinking about how much worth stocks are losing today, consider investing in the long-term. By and large, the stock market has a return of 13%. That amount changes by year and by the type of stock you put your money in. If you diversify your investment and continue investing, you will see a good profit on your investment. As history teach us, the stock price eventually goes up after the market crash.

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