Investing has transitioned from being optional to the need of the hour to build long-term wealth. However, entering the investment arena without a strategy can give substandard results.
So, let us take a look into some key fundamentals and financial advice if you are beginning or looking to improve on an investment approach.
1. Set Your Financial Objectives.
Some reflection on investment objectives is imperative before one embarks on investment: What do I want to achieve? Retirement, buying a home, or just earning a few bucks passively? Whatever objective category you fall into will dictate other things like asset allocation and investment horizon. FINRA’s study shows that having clearly set objectives brings better financial outcomes.
2. Establish a Strong Financial Base.
An alarming 63% of Indian millennials invest without an emergency fund, ET Wealth states. Before risking your capital, ensure that you have the following handled:
- An emergency fund should cover around 3 to 6 months of expenses.
- Little or no high-interest debts
- Health insurance and term insurance
- Keep this other financial advice in mind before investing.
3. Consider a Compound Effect.
The saying always goes that compound interest is the eighth wonder of the world – and in real life, it surely meets those expectations. Investing ₹5,000 per month through a SIP, staying invested for 20 years, and assuming a return of 12% per annum would make more than ₹50 lakhs.
4. Diversification Is the Way to Go; Speculation Is to Be Avoided
According to a Business Insider report, the notable investor Ron Baron credits his incredible returns of 1,843% over 22 years to a strict discipline of diversification. Avoid the temptation of putting your investment into one stock or one tip. Instead, one should give preference to diversifying across stocks, bonds, and gold, considering how much risk they can endure.
5. Know What You Are Doing Before You Put Your Money In
Being uninformed can lead to gross errors. The Capable Wealth blog highlights the importance of knowing exactly what you’re putting money into. You might even want to read some landmark books, such as The Intelligent Investor, and stay updated on reputable websites.
Investing is not just about building returns; it is about using your knowledge so that you may be able to make good decisions. Learn the basics of investing, follow good investing advice, and remember: slow, steady, well-informed progress is success.
