It is easy to earn money, but hard to keep it. Investing allows you to hold on to your hard-earned cash and use that money to acquire profitable returns in one form or another. A public provident fund, mutual fund, real estate, life insurance, equity, Fixed Deposits or shares are few common investment options. A sign of a successful investor is that he maximizes gains and minimizes losses. To ensure that you are able to capitalize the most on your investments, here are a few tips:
1. Decide the Goal
The first step in investing is realizing whether it is a short-term goal or a long-term goal. If the aim is to invest money for a short period and acquire cash in a month or a year, then it is better to invest in savings accounts or a SIP mutual fund scheme.
But, if the aim is to invest for college funding, retirement, or buying a house, then it is better to opt for long-term goal. Gold, public provident fund, mutual fund, stocks, Fixed Deposits, bonds, and real estate are few investments that guarantee a long-term return. Once you have decided the goal, it’s important to start saving and investing for the journey.
2. Understand the Risk Tolerance
Risk tolerance is the volatility and variability in an investment and its returns that the investor can withstand. So, the next step in investment is to understand the risk tolerance. For example, if the investor has knowledge about finances, the process of buying and selling stocks and their volatility would be determined effectively by the investor.
They would be able to liquidate their investments with much more ease. It also helps in determining whether the investor should opt for a short-term or a long-term investment. Someone with a low-risk tolerance should opt out of a short-term investment that has high risks associated with it and vice versa.
3. Determine the Strategy
Warren Buffet’s basic rule of investment states, “If I don’t understand it, I will not invest in it.” An investor has complete control over his money, and hence it is crucial that he invests in strategies that are useful for him. For example, most people consider FDs as one of the most secure options for investment.
Nowadays, many NBFCs like Bajaj Finance provides high FD interest rates of 7.85% with a flexible tenor. On top of that, they also provide several pre-approved offers and schemes on the investment plans to allow the investor to gain higher returns on their investments.
You can know about the process of creating a fixed deposit with Bajaj Finance. Also, one can calculate their gains in long-term investments by using FD calculator. Hence, determining the strategy is crucial to your investment plans.
4. Handle the Basics First
Learn the basics of the stock market and individual securities of the market before making the first investment. The focus should be on individual securities rather than the market. There are some areas that the investor should familiarize themselves with, before plunging into hardcore investments:
Understand the Financial Metrics
Understand the definition of metrics such as the return on equity (ROE), earnings per share (EPS), P/E ratio, and compound annual growth rate (CAGR). One can easily calculate and compare benefits of investing in different companies after knowing these metrics.
Analyse Market Timing and Stock Selection
Market timing skills mean accessing the direction of the market, i.e., bull or bear and positioning the investments accordingly. Stock selecting skills, on the other hand, include micro forecasting individual stocks that are under or over-valued as compared to other equities.
5. Diversify the Investments
The last step is to start investing, but as the age-old saying goes, “Don’t put all your eggs in one basket.” Diversify the investments and own stocks across a variety of industries. A downfall in one event should not impact all your holdings. If you have diversified your investments, you can also acquire loans against these investments as security. This way investors can diversify their investments and reap the benefits of low investments.