If it was the decade of 2010, all you were to be taught about money was work, pay your bills, retire, and die. Now, from the last couple of years, Financial Literacy and Money management is being taught and followed all around the globe. People now know that the Work-Pay-Retire model is long gone, and they need to save and invest in order to compete.
But if you are a starter and you are learning about money, Personal Finance, Financial Management, you will come across one common term that is – Investment.
Therefore, before getting into how to invest and where to invest, it is important to know what is Investment.
Table of Contents :-
What is Investment?
Investment is when you put your money at a place where it gives you some return or allocates you an asset that can earn you income in future. An asset is what puts money in your pocket. For example – Real Estate, Stocks, Businesses, etc. These things tend to increase their value over time, and the owner gets returns on invested money.
The more you invest and the longer you remain invested, the better ROI comes your way. ROI stands for Return on Investment.
To put it more simple –
There are two main terms for Money Management –
When you put your money somewhere safe and avoid spending, it is called Saving. It is basically Collecting Money; the amount remains the same and decreases due to Inflation over time.
While Investment is when you put your money in assets and allocations where it grows or returns more money, it has the potential to beat Inflation and give major returns.
Understanding Investments better
When talking about investments, I mean to include every type and kind of investment. It also includes your money poured into a new business or venture. Be it your own or somebody else’s. Mind that – Investing money in businesses or start-ups doesn’t guarantee a positive return. It has a good chance that your money may all be washed away.
That’s one thing about Investments. Although many are safe, there are a few that have the equal chance of backfiring.
In the Investment world, the terms are called – High Risk, Medium Risk, Low Risk.
- High-Risk Investments – The investments which have a high-risk rate. These have a full chance of going into losses. However, the higher the risk, the higher the ROI. You can count highly volatile stocks, start-ups and businesses in this type.
- Medium Risk Investments – These types have medium risk and offer medium ROIs. Examples for you to take away are – Sectorial Mutual Funds, established area Real Estate, etc.
- Low-Risk Investments – Such Investments almost offer the guarantee of positive returns. However, the ROI is pretty low too. Preferable because of low-risk lovers. Index Funds, established large stocks, etc., are counted into this category. Government policies come under a low risk profile too.
As we talked about Investment Risk Profiles, there is one more thing that lets you identify your investments.
There are two categories of investments –
- Fixed Income investments: The investment profiles that offer a fixed percentage of return over a period or interval are fixed-income investments. The Bonds and debentures can be counted as such.
- Variable Income investments: All other investments such as Real estate, stocks, equities, etc., that do not have a fixed return rate come under this category. The returns in such are varied from negative to positive, basically unpredictable.
Reasons you should start Investing.
If you have been reading all of my articles, or even a single article, you would know the reasons to invest. But if you’re new here –
You must have some dreams, some goal that you tirelessly work for. It can be anything, making money, getting rich, retiring early, travelling the world, etc. All these dreams require money to be taken care of. You can’t just achieve anything without having enough money.
No, your daily income can’t bear all of it. You have to save and invest in growing your money. With your money growing, the possibility of your dreams coming true grows too! Let me give you some more reasons –
- The enormous growth in net worth over time.
- Financial Freedom. Do whatever you want and whenever you want.
- No pressure of bearing responsibilities and tension of retirement.
- The most important secures you against future unpredictability.
If I start pointing out every reason and benefit of investing, it might take us very long. So, I leave it up to you. Think of anything you want or need. Now, relate it with the role money plays in it. Then, you’ll have your answer to start investing.
Points to check before you start Investing
Once you have decided to start investing, check these points or verify these factors –
- Have you identified your goal? It is important to know whether you are investing for the short term or the long term. It’s better to have a made-up mind.
- Do you have an Emergency Fund? First, build an emergency fund that covers at least six to eight months of your expenses. Because, in case something comes up, you won’t have to withdraw your premature investments.
- Keep in mind that investment is for the Future. It is nothing like getting rich quick scheme.
- Never put your eggs in one basket. Diversify. Break down your money to invest in multiple schemes and ventures. Please don’t overdo it, though.
- Before starting the process of Investment, make sure you build the habit of saving first.
How can you Invest?
Now that you’ve checked and verified all pre-requisites, here is the time to see how you can invest. It is simple – You either do something yourself, or you get some help. This applies to every aspect of life.
The same is with investing –
1. DIY Investing – Do it yourself investing refers to learning and investing into assets on your own. In this, you research yourself, gain knowledge, invest and manage on your own
2. Hire a Professional for help – If you know nothing about investing or you don’t have enough time to research, think, analyse and invest – you can hire a portfolio manager or a wealth manager to analyse and invest your money for you. What he gets is a small percentage of your returns and his fee. That’s all.
Now you know more about investments than 70% of the people on this planet. In the last section, I am pointing about 7 of my favourite Investment Options to help you learn more and get started.
7 Investment options for Beginners
- Equity Mutual Funds
- Debt Mutual Fund
- PPFs (Public Provident Fund)
- Real Estate
- Direct Stocks
- Your country’s NPS (National Pension System)
- Gold. Physical Gold instead of Soft/Online Gold.
To sum the article, I mentioned the definition of Investment, its understanding, categories and also the famous investment terms like High-risk, low-risk, medium-risk.
We saw the difference between fixed income and variable income investments along with the benefits and long term goals associated with investing.
The investment options we talked about are some of my favourite picks and are very beginner-friendly. To learn more about these Investment options, stay tuned and hover around the Investment page for more articles.
Till then – Happy Investing!