Investing for the first time? Do it right
If you are planning to take your first steps towards investing to secure your future, congratulations! Deciding to get started is half the battle won. Once you resolve to embark upon this journey, all you have to do is follow a few simple steps to get to your destination of financial well-being.
If you are a first-time investor and full of doubts about the investing process, here is crisp yet handy guide to help you make the right moves. Here are four key steps you should take to go about investing meticulously.
1. Write down your financial goals
Investing should always be goal-oriented. It is, therefore, crucial to understand why you are investing in the first place. Writing down your financial goals can give you the clarity of purpose and help you to fine-tune your investment journey. The financial goals could range from the major ones like buying a house, paying for your child's higher education, and saving up for retirement to the minor ones like taking a vacation or buying a premium gadget. Assign a timeframe for each goal and note down the funds needed to fulfill each of them.
2. Understand your risk appetite
Next, determine your risk appetite. Clearly define the investment risk you are willing to take to fulfill your goals. You may be a conservative/moderate/aggressive investor. This risk appetite determines how you allocate your money across different asset classes.
For instance, an aggressive investor may be willing to invest more in equity instruments, but a conservative investor may prefer bonds instead. A moderate investor, on the other hand, will balance debt and equity in his portfolio.
Understanding your risk profile before you start investing can help you select the investment options best for you. Educate yourself about the available investment options.
3. Come up with an investment plan
Once you have listed your goals and assessed your risk profile, you need to understand which investment options are the best for you. Gather information about the various investment options available in the financial market. Read up to understand their risk-return profile, the lock-in period, if any, and also how they are taxed. Some investments also give you tax benefits in addition to the regular returns. Before you invest, you need to be aware of all your options.
Learning about the available options will equip you to select suitable options and integrate them into your investment plan. Also your investment plan should detail the amount of money you need to save and invest, the investment options you must choose, and your asset allocation, among other things. Having a plan in place ensures that your investments align with your goals.
4. Stay on course and review periodically
Once you have finalized your investment plan, stick with it to reach your goals. Momentary market developments may feel tempting, but securing a financial future requires patience and long-term commitment to the options selected after all deliberations. Review your progress at regular intervals to ensure that your investments are in line with your goals. If you feel a need to make any adjustments, rely on your research and wisdom rather than on SMS tips or online chats.
You can consult a professional adviser to stay on course.
Summing up
As a first-time investor, it may be daunting for you to take care of so many things at once. But you can always start small and take it one step at a time. These steps outlined above may be simple, but they are the foundation for investing prudently. Once you have these fundamental areas covered, you can ensure that your investment plan is stable and reliable.
In this process, one of the fundamental questions is 'to allocate funds for all expenses and invest the balance' or "invest a specified/required/set amount and spend the remaining for expenses". Though it is a debatable point, the best proposition is to opt for the second option, with which you create investments required to meet future goals, conveniently. This is the best option as per the international investment study.
"An investor without investment objectives is like a traveller without a destination."
The author, V Murali Dharan is a Chief Financial Officer in a Real Estate Firm and has industry experience of over 30 years in various fields say, Direct, Indirect Taxation, Company Law, Accounting - including identifying revenue leakage, Audit and General Management & Human resources.
Article courtesy: a DH article by B Gopkumar
CAclubindia
