10 Investing Concepts Beginners Need to Learn

10 Investing Concepts Beginners Need to Learn

As a beginner, investing can be a big decision. In many cases, even the experienced investors feel it exasperating to get their desired return from the invested sum. Once a beginner starts learning, they fall and get up again. With all their downfalls, they discover themselves getting better every time.
Here, we bring you the ten salient elements to learn as a beginner. These points are referenced by the most experienced and successful investors. By aligning to these, you can surely learn a lot from their mistakes and avoid them in the upcoming future.

1. Have a Financial Plan

The first and foremost thing one needs to do is have a well-crafted financial plan. Financial plans can be anything related to our goal of wealth accumulation. It can be buying a house or car, saving for retirement, medical emergencies, etc. Also, these goals vary over time.

Having a financial plan to invest money can be beneficial in the long term. By making a fixed goal, we can devote ourselves to keeping an eye on the obstacles and milestones that will come forward.

Most of the cases come for early retirement. They want to save enough to retire at an early age. It is also known as FIRE(Financial Independence, Retire Early). For better financial planning, it is advisable to take the help of experienced financial advisors to manage funds and grow assets.

2. Make Saving a Priority

One who is committed to their goals can surely achieve them. The same goes for financial objectives. When it comes to investment, the priority of the person should be savings. It becomes slightly difficult for beginners to start saving all of a sudden. But, they need to realize the true potential of saving money and growing it with time.
If you are an employer, cutting down a small portion from the paycheck can not be a difficult task for once, twice, and thrice. But, when it comes to doing it for years, it might become strenuous for you as with every passing time, needs also grow. You need to understand that “Every penny saved is a penny earned”.
The best way to avoid overspending and saving a portion of money frequently can be through RDs(Recurring deposits) and SIPs(Systematic Investment Plans). Here, your desired money will automatically get deducted from your account after every definite interval. Thus, savings will become a priority, and you will get bounded by a certain sum to spend for the rest of the month. It is one of the best ways to save money as a beginner.

3. Understand the Power of Compounding

The best example to elaborate “Power of Compounding” is one of the legendary investors, Warren Buffet. He accumulated a lot of wealth this way. Here, your money multiplies itself exponentially. You will receive returns on return. It might be a little confusing, so let me explain by giving you an example.
Let us assume that you invested Rs. 10,000 initially once for a year.
The returns will be compounded monthly with an interest of 10% per annum. Here, you will see your money growing in a year.

Month Principle (In Rs.) Return rate Amount returned (in Rs.)
January 10,000 10% 11,000
February 11,000 10% 12,100
March 12,100 10% 13,310
April 13,310 10% 14,641
May 14,641 10% 16
June 16,105.10 10% 17,715.61
July 17,715.61 10% 19,847.17
august 19,847.17 10% 21,831.89
September 21,831.89 10% 24,015.08
October 24,015.08 10% 26,416.59
November 26,416.59 10% 29,058.25
December 29,058.25 10% 31,964.08

The amount that you will return after a year will be Rs. 31,964.08. Here, you can see that the amount returned will be the principal amount for next month. Thus, your money keeps on multiplying itself. Many people use this compounding methodology to accumulate extravagant wealth at a later age. As a beginner, the most suitable plan for you is SIP considering the power of compounding. Here, you can take a low-risk investment plan.

4. Understand risk

Risks play a pivotal role in investments and savings. Unlike stock market investments, many plans come with low risk while it depends upon the investors to predict the type of uncertainty they can tolerate. It means how much loss one can undergo during the worst-case scenario.
It is not to scare you from investing, but to make you aware of the fluctuating market. Many low-risk plans can bring you lesser returns. However, there are high-risk plans with huge returns. Well, as mentioned, it entirely depends upon the risk appetite.
The youngsters get along with the craze of huge returns through stock marketing, and they lean forward to it. But, it is not always an advisable plan if you are serious about investing and coming up with a financial goal. It is better to take small steps as “Slow and steady wins the race”. Might the limelight of the stock market and magnificent return funds deviate you, but you need to be aware of the market also, and as a beginner, you need to learn to swim before diving into the ocean.

5. Understand Diversification and Asset Allocation

Diversification is a broad term when it is a matter of investment. One needs to stay diversified and have a proper asset allocation to get more returns. It is a beneficial step for investors. For beginners, it is highly advisable to allocate their funds in such a way to bear the minimal loss in the worst-case scenario.
Every renowned investor has some backup on investment. Even if they lose a prodigious sum, they can bear that loss by overcoming it with a corpulent gain. Investments work this way. You can buy multiple funds like stocks, bonds, SIPs, and other investment plans. In this, you can diversify the assets.

6. Keep Costs Low

There can be several hidden fees on any investment plan. So as a beginner, you should read all instructions and every minute detail mentioned in it. You have to avoid any unnecessary costs. There may be some costs related to maintenance of funds or anniversary charges, and it is alright. These charges remain the same with almost every fund.
But if any charge is unnecessary, you have to avoid it then and there because your motive is to save maximum money and spend minimum. It is advisable to take the help of professionals before coming up with a decision on any fund investment. So, try to seek help from financial advisors.

7. Understand Classic Investment Strategies

Classic investment strategies rely more on your financial goals. While some people opt to accumulate a lot of wealth for a later term, they choose a gains-oriented investment plan, which is utterly different from income-oriented agenda. In income-oriented ploys, people seek to generate some source of their income via investment.
Also, there are other investment strategies like active and passive investment, where one consistently invests their money to get output at a later stage. On the other hand, people are not investing continuously; instead, they choose high-risk short-term plans.
As a beginner, you need to have a proper mindset on the investment strategy you will work upon. It is highly dependent on your financial goals. So, no matter if you are a newcomer or have experience in investing, these classic investment strategies are valid for all investors.

8. Be Disciplined,

Being disciplined is one of the prime factors of successful people. In terms of investment also, you can stick with it to get maximum returns. It might be arduous at the beginning to invest consistently but remember, it takes a few days to make anything a habit. Once you get habituated to investment, you will start experiencing joy in it.
Stay disciplined and committed to your goals to let the strategies work in your favor. The results will be extraordinary, and you will feel privileged experiencing the output and sweet fruitful results of the investment.

9. Think Like an Owner or Lender

If it is something that belongs to you, then you are an owner. The money you invest in stocks, bonds, and funds, is your money, and you are the owner of your portfolio. So, always keep the mindset of the owner rather than a lender. Likewise, before investing anywhere, there can be sudden downfalls. You need to think like you own a business and measure its ups and downs for desired results.

10. If You Don’t Understand It, Don’t Invest in It

Before investing anywhere, you need to have a clear idea of the funds. Many people think that investing in stocks can always greet them with huge chunks of money, but it is not always the case. Stocks can be fruitful, but it entirely depends upon the market. So, understand things clearly before investing. Once you invest somewhere and lose money, you will regret your investment decision.

It will take you away from taking risks and major decisions. So, seek the help of experienced financial investors before investing anywhere. You can find many of them with their key service as investment portfolio management.

Let’s recap

Deciding on investment is itself a big step ahead for the future. Instead, everyone had started it somewhere in the past. Thus, we all are beginners at some stage of time. This blog is written taking reference to the experienced investors of all time. Now, you can start your exciting investment journey with the experiences and lessons learned so far.

You can take the help of wealth management services providers for the best results. In Delhi, the best wealth management professionals are WC Securities Pvt. Ltd. You can check their website at https://www.wealthcareindia.com/ They have tons of professionals with over a decade of experience in investment portfolio management. It will be better if you take their help and proceed with investment to avoid risks appearing so far.

CA Mukesh Gupta
CA Mukesh Gupta
Mukesh Gupta is the founder and director of Wealthcare. He is Fellow chartered accountant, Certified Financial Planner and Certified Public Financial advisor. He is in financial services industry since 1994. He conducts free money management sessions for corporates and associations on topics related to Personal finance. His previous engagement was with Birla Sunlife group. He regularly writes on topics related to Personal finance and occasionally appear on electronic media.

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