It sounds very simple to invest these days because there are so many options available, including direct equity, mutual funds, derivatives, cryptos, bonds, etc. For beginners in particular, all options are open, allowing them to participate in any asset class as they start their investment journey.
However, before beginning a journey in any asset class, one must ascertain whether the investor is familiar with that asset class and the related risks.
Beginners have a very high risk of losing all of their investment money since they frequently operate in the same way as others, make the same decisions as others, and even mix trading and investment.
They have the opportunity to invest as much as they can because the majority of them will not have any liabilities or dependencies on them. However, any investment they make carries risk and the chance of losing money is always present, and in some instruments, the risk is even higher if leverage is used.
Here are some lessons for beginners before they begin their investment journey. or, if they've already begun, they can apply these lessons by changing the current investment strategy.
Before investing in any asset class, educate yourself about money management and the various asset classes and then decide how much you are willing to commit. The best course of action for beginners is to wait until they have enough understanding before making an investment.
Save money before investing
Beginners frequently dive right into investing without making any savings, which can be harmful if their investments lose value or become trapped and they are unable to liquidate them. The best course of action is to first set aside money for emergencies, which functions like a self-pay bill that you can use when necessary.
It is said that don’t waste your savings in paying hefty hospital bills. Yes, it's true that a medical emergency could wipe out all of your funds, investment and possibly raise your liabilities, but don't worry—we have solutions like term and health insurance.
Health insurance assists in offsetting the cost of medical care. Term insurance, on the other hand, ensures families' financial stability.
Beginners can seek assistance from experts to determine the appropriate level of insurance for their needs.
Don’t stick to single asset class
Beginners have the options to invest since they can accept risk, but they should always diversify their investments into several buckets which helps them reduce the risk. The best strategy to invest is in line with your personality; this will allow you to choose how much risk and allocation you can tolerate. Start with a systematic investment plan to stick with regular investment.
Identify your needs vs wants
Whatever you actually need to have is what we call a need. But a want is essentially something that improves your life and that you'd want to have but that you can live without.
Beginners should always prioritise their needs before their wants. This will benefit them to save more and then they can invest for the future. The final and most crucial lesson is to begin the previous lessons as soon as you can.
The above-mentioned lessons will assist beginners as they embark on their journey toward financial well-being. Investing is really simple, the best way to achieve it is with a strategy that brings you peace of mind.
Akhil Rathi is the Vice President-Financial Concierge at 1 Finance