It is essential for beginners to know how to start investing money in equity.
People who have high investment IQ can invest money on their own in a best possible way.
But people who are not so knowledgeable about investing must learn about how to invest money.
In general, common men are not so conversant about investment as this topic is not taught in schools.
People grow-up with very little understanding about how to manage money.
But that’s ok, investing money is a skill that can also be gathered with experience.
Practice makes a person perfect in investing.
But why I am talking about practice? Investing money is an art.
One cannot become a successful investor by being dependent on other advice.
We have to be our own master when investing money is concerned.
Riding a bicycle is a very good analogy.
To master cycling, we cannot expect others to ride bicycle on our behalf.
We have to learn this trick by trying and practicing ourselves.
There will be few falls, but it must be taken in a right spirit.
Even dollar lost in initial years will convert to gains in later years.
We must invest money as if it is a good habit.
#1. Start investing money for wealth creation
Before we learn how to start investing money we shall understand why investment is necessary.
One should invest money for wealth creation.
Long-term wealth creation by investing money should be ones goal.
Money works for us when invested in a right way.
Not allowing money to ‘work for us’ is agreeing to stay poor. Nobody wants to stay poor.
Everyone wants to improve ones standard of living at a reasonable pace.
But this will only be possible when people invest money in a right way.
Right investment options focuses more on long term wealth creation instead of quick moneymaking.
Long-term wealth creation ultimately leads financial independence for a person.
So, the first concept that must be learnt about investing is focus on wealth creation.
#2. Do the preparatory work first…
Common perception is that, large sums of money are required to start investing money.
However, thanks to technology, we can now start investing money with as low as Rs 500 per month.
Now, anyone can start investing without much trouble.
If one has an Internet connection, investment can be practiced from comfort of home.
Opening a Demat Account and an online trading account is the first thing a beginner must do to start investing money in stock market.
There are bare minimum charges for opening demat and trading account.
Once these two accounts are active, here you go buying and selling stocks.
#3. Learn investing money without risk of loss
The biggest problem with investing money is the risk of loss associated with it.
This is the reason why experts asks beginners to start investing in mutual funds through SIP and ETF’s.
I have personally started investing with a recurring deposit.
However, beginners do fantasize more about invest in stocks.
This is the reason why, though this article is about beginners, but it talks more about how to start investing money in equity.
Experts of equity investing are masters of fundamental analysis and stocks valuation techniques.
Hence they prefer investing in direct stocks.
But people who are ‘not’ knowledgeable about fundamental analysis and stock valuation should keep themselves away from direct stock investing.
For such investors there are several alternative ways of investing in equity.
Buying equity indirectly through mutual funds and ETF’s is a good alternative.
#3.1 Mutual funds
Mutual funds are managed by experts.
Experts are specially trained in fundamental analysis and stock valuation skills.
When a common man buys mutual fund units they are indirectly utilizing the skill of experts.
Even if one has very less investing know-how, but invest through mutual fund route is like replicating an experts skill.
I personally feel that mutual funds are the best investment option for a common man.
Mutual funds becomes even better for beginners when investing is done systematically (SIP).
ETF is a great amalgamation of stocks and mutual funds.
Experts suggest beginners to invest in equity through index linked exchange traded funds (ETF).
ETF (specially index linked) can be a perfect investment option for a beginners.
#3.3 Blue Chip Stocks
Beginners can take more risks can buy direct stocks.
But focus should be only on blue chip stocks.
Focusing on blue chip stocks eliminates the necessity of fundamental analysis.
Blue chip stocks are inherently very strong in their fundamentals.
If one is buying only blue chip stocks they shall pay more importance to stock valuation.
#4 Do you know why you are investing?
There can be different objective for which one can invest money.
Identifying objective of investing is a very effective way of ensuring wise investment.
Depending on the objective one shall include suitable securities in the investment portfolio.
Few broadly classified investment objectives are:
- Income generation,
- Protection of Capital, &
- Capital Appreciation.
If I am investing for income generation and buying low cap stocks, its a mistake.
Similarly, if I am investing for capital appreciation and buying bank deposits, its again making a mistake.
Few suitable example of suitable investment options are:
- Income Generation – MIP of Post Office
- Protection of Capital – Index Fund or Index linked ETF
- Capital Appreciation – Diversified Equity Mutual Fund.
Investors who want to start investing money in stocks shall remember a golden rule.
Always try to stay invested for long term.
If you have to invest for short term goals investment must be done in risk free options like:
- Bank deposits,
- Debt linked funds etc.
Always remember these two investing rules of Warren Buffett:
Rule 1 – never lose money and Rule 2 – do not forget rule one.