Easy practical tips about investing for beginners
This article is meant to direct you in the right direction regarding investing and wealth generation. So, that when you are researching for yourself in detail, you know what you are looking for.
My aim is to give you gentle introduction but also tell you the most valuable information which big names in investment industry agree with, who don’t have an ulterior motive.
1. Start saving as early as you can, even if you just save money in fixed deposit, to take advantage of compounding.
e.g.: Let’s assume that in first year you save 1000 dollar in your currency and you get 10% interest on that which is 100 and your money becomes 1100. Next year you save 2000, now you get 10% on your total savings of 2000 + 1100 = 3100 which is 310 and hence your total now is 3410. In 2 years without doing any work, you earned 410 in form of interest.
2. If you minimize your expenses, you need to earn less and save less for a healthy and happy life.
e.g.: If you earn 10000 per month and your expenses are only 1000. You are saving 9000 which is 90% of your income.
On the other hand, someone is earning 50000 per month, and his expenses are 40000, he is saving only 10000 which is 20%.
Assume you both worked for 2 years and maybe something like covid-19 happened and you both lost your jobs. So in 2 years, you saved 9000 * 24 = 216000. Since, your monthly expenses are only 1000 you can survive 216 months on those savings which is 18 years.
The other person saved 10000 * 24 = 240000
So his savings will last him: 240000/40000 = 6, i.e. only 6 months.
3. Try to be debt free
You should see paying off debt as risk free return on investment. If you have 10% interest rate on a loan, paying off that loan is like a RISK FREE RETURN. No investment can beat that.
4. Have an emergency fund
Try to save money, at least around 6 times your monthly expenses. Save this in low risk instruments like fixed deposits. This will help you in unplanned emergencies.
5. Index Mutual Funds are mostly what you need for generating wealth.
You can read about other instruments like Fixed Deposits, Government Bonds, Tax Saving Mutual Funds, Stocks etc if you want to but if you just rely on index mutual funds with low expense ratio around max 0.2, it would generate wealth for you.
6. Buy mutual funds or stocks at the right value
When you are investing in mutual funds or buying stocks, you are essentially buying a part of company like Nestle or Microsoft or other. Sometimes the price of getting that part of the company is overvalued, that is like paying 2000 for shoes which generally go for only 1000, just because the hype was more for those shoes. So, try and buy part of these companies when they are being sold at the right value.
7. Wealth generation(availability of money for long term) is no quick fix
It doesn’t happen in a day or a month. Be patient, just focus on saving money periodically but also lead a healthy and happy life. Try and save around 30% — 60% of your income.
I hope you see how simple and beneficial investment can be. Please take the points above as a framework for your own research. All the best for your investment journey.
