6 common misconceptions about investing
You’ve always wanted to start investing, but for some reason or another, stopped short of making that first trade. Maybe you feel that investing is too complicated, too risky, and requires a lot of time and money. We look at some common misconceptions about investing, and put them under scrutiny.
You could, but is there really a ‘right’ age? If anything, you should start sooner, rather than later because investing a small amount regularly for longer periods allows you to take advantage of reinvesting and compounding. With monthly investments of Rs. 500 accompanied by reinvestments of all earnings, even a modest growth of 10% rate of return per year would earn you over Rs. 3,82,848 in compounded returns over 20 years. By investing your money, any returns you achieve will go some way towards mitigating the effects of inflation so your money retains its value by the time you plan to retire.
While having a larger sum of money from the start might allow for more investment options, shrewdly investing even modest sums can result in sizeable returns over time. Plus, bear in mind that you’ll also have more financial commitments as you get older, which might make setting aside a sum for investment equally challenging later on. Start small. There are lump sum investments that start at Rs. 5,000, or Systematic Investment Plans (SIPs) from Rs. 500 per month.
While the range of investment options includes sophisticated and complex products, start with basic ‘plain vanilla’ products. Always make informed decisions. Start with investments you understand, be it mutual funds or stocks then educate yourself fully using a combination of online resources and speaking with a trusted financial advisor.
While long-term investing allows you to benefit from the power of compounding and ride out short-term instabilities in the market, short- or medium-term investments allow you to take advantage of market opportunities and cash out in a couple of months or years. If liquidity is a concern, most mutual funds can be redeemed daily, freeing up cash when you need it. Depending on which point in life you are at, choose an investment that suits your needs.
With most of us constantly pressed for time , the idea of having to constantly monitor an investment can be a turn-off. However, there are investment opportunities that allow you to take a more hands-off approach, using a buy-and-hold strategy. Investing in certain type of funds with a long-term view will allow you to monitor your holdings at regular intervals instead of responding to constant market fluctuations.
There is a wealth of investor education available for the diligent, which can easily engulf the novice investor. Instead of trying to tackle the mountain head-on, start off with the basics first by establishing your own financial needs and wants.
- Myself: Learn how to identify your risk profile and risk appetite
- Money: Identify what your budget, available capital for investment, and financial goals are
- Time: Consider how long you want to stay invested
By getting the basics sorted, you’ll be able to be targeted in your investment direction, and then gain familiarity with different investment products. It does take time, but the results are worth it. Speak to a trusted wealth advisor or attend courses.
To conclude, it is important to understand your financial situation, goals and investment approach and learn about the fundamentals of investing so you can take concrete actions to start on your journey.
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Mutual Fund investments are subject to market risks, read all scheme related documents carefully before investing.