It is a million dollar question. Do I really need to invest in stocks. What about my risk appetite?
Do you have a Yes /No answer to it? If Yes then why and if NO then why? I am pretty sure that you will agree that investing is a very good practice. But where? directly in stocks ? in mutual funds or fixed deposits or bonds.. taking a decision is tough right?
Before jumping in, let’s have a quick glance of things which you need to consider.
1. Understand your goal
Before investing you should have a plan, a goal. You should be clear about why am I investing.
It should not be like my friend is investing so I will also invest. Or someone was advising on some TV channel that it is the good time to invest. I am sure, most of us get carried away by these so called “analysts’s” predictions and loose our money.
So, what is a goal? It can be anything like your son’s education, daughter’s marriage, down payment to your new house or even a retirement plan for yourself.
It will give you a fair idea how much is required and when it is required. Once you have this estimate then you can divide your total investment into monthly or weekly installments. In each case the amount and nature of investment will vary.
Well, now you are clear about you goal. Now proceed to the second step
2. Understand your risk appetite
There are thousands of instruments available to invest your money. Starting from the secure fixed deposits to moderate risky mutual funds to high risky volatile stocks. How do you select the right instrument?
There are three things to consider while selecting the right investment option.
- Your age – Yes, age is a major factor while taking your investment decision.
- If you are in your early 20s or 30s, then you can take more risk. I know it is always dependent on your financial position. But, still you can try some high risky instruments for high returns.
- If you are a middle-aged aged person in your 40s then you are supposed to maintain a 30% – 70% balance between stock and fixed deposits.
- If you are a retired person or getting retired soon then, you cannot risks your hard earned money. So you can have 10% of your money invested in stock and the balance must be in secure deposits. After retirement you are not going to earn anything, but if you loose your lifetime savings in stocks then your life will be miserable.
The percentage mentioned above are illustrative. It can vary according to your risk appetite. But don’t deviate more
3. Informed about your investment options
I hope you have your goal an risk analysis completed now. Let’s check out some of the investment options available.
- Bank fixed deposit – It is the safest and conventional way of investment. You will get low returns but the risk is almost nil.
- Public provident fund – If you are looking for a retirement fund as well as an investment opportunity, then you can select PPF. The interest rate is slightly more than of Bank FD.
- Post office savings schemes – There are recurring deposits and fixed deposits available at post offices which offers moderate returns.
- Government bonds – Another set of investment instruments where you can expect security and moderate returns.
Risky investment options
- Mutual Funds – Mutual funds are funds maintained by big fund houses who will manage your investments. You have to select the fund as per your risk appetite and invest on a regular basis. You don’t have to fume your brain for selecting the right stock and right time. Fund manager will do it for you with a nominal charge.
- Stocks – if you really good at stock picking or if you have experience in stock , you can invest directly in stocks.
4. Make investment a habit
What’s next? Implement what you have learned so far. Not once or twice. Make it a habit. Do it religiously. If you don’t believe in religion then do it in the atheist’s way like me. But let it continue.
Investment in general is a vast topic. Here I tried to share you a few points which no one had told me when I started my portfolio. Hope it was helpful for you. Let me know your likes and dislikes in the form of comments.