“A penny saved is a penny earned” is an age old adage. The essence of this maxim has, however, gone for a toss in the contemporary business world. Bank account savings only fetch us monthly interest, they do not serve as a quick and easy way to riches and happiness.
To grow your money, you need to start investing. Since it’s not easy for a newbie in the market to invest and become a millionaire overnight, here are several tips that should be followed by beginning investors-
1- Save money and set long term goals– You should first answer these three questions-
- Why do you want to invest?
- When will you need your money back, in a year, 2 years, 5 years or longer?
- What are you investing for? For retirement, exigencies, further studies, purchasing home and so on.
Based on the answer to these questions, you should start saving as soon as you start earning and as much as possible. The growth of your invested money will, however, depend on the amount of money you invest, the amount of return on your investment and the duration of your investment.
2- Understand the basics of finance- Before you make your first investment, take some time to understand the basics of finance and stock market. You can even meet a financial advisor for expert advice on how to invest your savings to receive highest return possible and to understand the risks involved.
3- Analyse the market- Basics of stock markets or insights from financial advisor will not make you competent enough to understand the pulse of the market. Before investing in a particular stock, you need to analyse the market and keep a track of the performance of popular stocks. Herd behaviour in stock trading is strictly not advisable. You should invest in stocks which have consistently delivered good dividends and yields.
4- Know your risk tolerance- Risk tolerance is the degree of anxiety you feel when risk is present. Some stocks may be more risky than others, which means that the risk of losing your money in case you invest in those stocks may be more. It is important to understand your risk tolerance so that you can avoid those investments which puts you at a greater loss.
5- Diversify your investment- You can manage risks by diversifying your exposure. Do not make the mistake of putting all your eggs in one basket. Act prudentially and invest in different companies and different industries so that in case of financial headwinds, your holdings will be affected in different degrees, instead of getting wiped off completely.
Investing at a young age gives you an opportunity to build large asset value given you save consistently, manage risks skilfully and allow the magic of compounding to work for you. The earlier you begin, the greater will be the wealth accumulation but, remember to learn to walk before you begin to run!
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