As a novice investor, making that first move into the investing universe may seem challenging.
However, adopting a strategic approach while not falling for the advice dolled out by unsolicited agents and unauthorised social media handles can help one stay on the path for a long while navigating the complex investment landscape.
A few of the steps that a beginner in the investing world can adopt to make informed decisions include:
Stay informed: Educating oneself before diving in is crucial. So, take the time to gain insight into the basics. Get a hold of fundamental concepts and gain familiarity with various investment tools while keeping a tab on market trends.
Understand financial goals: Be clear about your financial goals. These goals could be classified into short- or long-term, such as purchasing a car, educating children, or buying a house, to list a few. This will aid in shaping the investment strategy to be adopted.
Diversification of portfolio: It is important to spread investments across different asset classes to reduce risk. As a time-tested strategy, diversification aids in cushioning against the impact of market volatility while ensuring a balanced approach to building a wealth corpus.
Have a plan: Depending on risk appetite, financial goals, and time horizon, one needs to design a plan that is customised as per these factors. A well-thought-out plan will be a roadmap and aid in remaining on track.
Focus on long-term growth: As they say, patience pays. In the world of investing, it is important to remain patient. Apart from short-term gains, the core focus should be on long-term growth. Let the power of compounding help your investments grow over a period.
Avoid following the herd: Although market trends and popular investments may appear tempting, the idea is not to get carried away and follow the crowd. Due diligence and thorough research can go a long way in making decisions depending on one’s financial objectives instead of being carried away by market hype.
Timing the market is not always necessary: Rather than trying to predict market movements, go in for a disciplined approach. Regularity matters in this case, and taking advantage of rupee cost averaging. A novice investor can consider adopting the systematic investment plan (SIP) mode of investing in mutual funds.
Avoid getting carried away by emotions: Emotional decision-making could negatively impact investments. Fear and greed could push one to engage in impulsive actions. Being rational while sticking to the financial plan and not being distracted by short-term market fluctuations could help in the long run.
Risk management is equally important: It is a fact that every investment involves some level of risk. Acknowledging and understanding these risks associated with an investment portfolio is essential. In this regard, diversification and periodic reviews are healthy strategies for building investment safeguards.
Stay away from overtrading: Beat that urge to buy and sell depending on short-term market movements constantly. Overtrading can lead to increased transaction costs and may hinder portfolio growth in the long run. Remaining focused on the investment plan is crucial.
Ultimately, it is important to align your investment strategy with the financial goals when building a healthy wealth corpus. Whenever you are in doubt over financial matters, always reach out to a professional expert who will help you with personalised advice.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.