Beginning Investing: What is an investment?
An investment is a concept where a commodity, physical or virtual, is bought with an idea to sell in the future for profits. In another way, people invest in banks or buy mutual funds and SIP for garnering bigger returns.
Investment is made to receive something in a magnifying form. Therefore, it is usually associated with assets. Investing in precious metals is considered one of the best investments because they can be sold offline and online. Also, they have less impact on inflation or market crises.
The purpose of putting money or your hard work into something is a fruitful outcome. For example, a farmer spends time, water and money cultivating crops for earning funds. So, if you are contemplating beginning investing in some assets, strategy is the primary virtue.
Beginning investing: Who is an investor?
Anyone who is investing in any financial market or buying an asset or property with the intention of making better financial returns is an investor. An investor uses several financial instruments to accomplish important objectives like saving for buying a house, retirement plan, education, pre-closing loans, accumulating wealth over time, etc.
Multiple financial vehicles help in reaching the target of investment. Options trading, stocks, commodities, Exchange Traded Funds (ETFs), cryptocurrencies, mutual funds, metals, real estate etc. are some of the avenues of investments by investors. They answer questions like how to start an investment, the best way to start investing, or how to begin investing.
Investors look toward an idea to minimise risks. They analyse investment opportunities from various angles and dimensions to avoid any perils associated with them.
How to start investing?
Before you start investing in any stream, do your research regarding the market. Every sector has its demands and ways of operating. A fixed deposit or savings account in a bank gives an investor a fixed amount of money as interest.
Investing requires patience and knowledge by an investor for generating bigger rewards in the financial market. However, some investing comes with the risk of losing funds. So, an investor should apply strategies for countering the issue.
Types of investments
If investors want to achieve financial targets, it is important to know about different trading vehicles or instruments. Each investment type has its own set of features that enhance profitability. However, they also have risk factors associated with them. Some of them are:-
- Precious metals
- Mutual funds
- Foreign exchange currency
- Retirement plans
- Security futures
- Bank deposits
- Exchange Traded Funds
- Real Estate
How to start beginning investing money?
There’s no perfect answer to the question of where to invest money in the financial market for earning profits. Your investment goals decide how much money you require for investment. Investing money is the most incredible way of accumulating good wealth over time. However, it demands patience and strategies in place. There are different ways one may decide to invest money. The query ‘how to begin investing’ can be answered using three basic steps:-
- Risk tolerance
- Style of trading
Style of trading
When you think of ‘how to start beginning investing’, timing is the first thing that comes to your mind. It determines the amount of profit you may earn. Passive investing and active investing are two ways for beginning investing in the financial market. Both have merits attached to them if an investor is looking for a long-term investment. However, it all depends on the amount of wealth you have and the risk-reward factor you consider. Moreover, the interest of an investor also matters in the investment.
Active investment means that an individual is involved in researching the financial market for buying assets and create a diversified portfolio. It means constructing and maintaining various financial assets and selling them after confirming a reasonable chunk of gains. For example, if you bid, buy and sell a forex currency pair or a commodity using online brokers like TradedWell, PrimeFin, TradeATF etc., you are an active investor.
A successful active investor remains in a profitable position and follows three important things:-
Before you enter any market actively, you should be backed by proper research and knowledge to know the potential risks and profitability factors. You should know how to analyse the market and strategise before investing. If you choose any sector, investing in that without knowing the market fully would amount to losses sooner or later. For instance, if an investor picks Tesla for stock investments and does not know about its products and revenue model, the buyer would lose or make fewer profits than expected.
So, it is important to do fundamental research or analysis of the company. That’s the essential part of knowledge. Thus, learning about basics pave the way for success in the financial market.
As an active trader, you should be able to manage your time well to initiate the homework properly while investing in an asset. Before investing money, you should invest time in research and analysis. The devotion of time creates investment opportunities for traders as one can gain experience in various markets and grasp the needs and ways of trading.
If you want to earn a certain amount of wealth in your lifetime, it is important to desire and execute into the practice for manifesting it in the true form. Active investment requires the capacity of desiring massively. For that, one needs to put patience in the thoughts. It requires a dedicated framework and tracking of the market for wealth to arrive. The desired target of financial investment should be coupled with planning and a good broker like ETFinance or ABinvesting.
The aim of passive investment is also accumulating wealth. However, here you are not directly involved in investment. It is like hiring a cab instead of driving your own car to the destination. The destination is important here, not the vehicle. People invest in mutual funds in the long run. Moreover, investors can hire a financial advisor who can decide where and when to invest on their behalf. There are charges applied for their services.
With the growing technology, investors are seeking the help of an artificial intelligence-enabled robo-financial advisor.
Differences between passive and active investments:
Passive investments Active investments
|Offers more stability||Comes with risks|
|Simple to understand and use||Needs better understanding|
|Moderate returns||High returns with perils|
|Do not require much research||Research a lot else lose money|
|Hands-off approach or less involvement||An investor requires full involvement|
Beginning Investing: Budget is essential
Beginners would always think they require a huge amount to start trading in the financial market. However, it’s a myth. They can start with as low as USD 250 by creating accounts on brokers like TradedWell, IGM Fx, 101investing and Capixal. Your requirement for a budget stems from the fact of how much you are willing to earn. It’s the desirability of profit, which secures the budget.
Also, it is recommended that if you are a learner, going slow and steady are the best options. So, a beginner should think of multiple aspects before budgeting.
- Always set aside some emergency funds while beginning investing in the financial market. For example, if you invest in a cryptocurrency, and the price of that asset plummets after your investment. You should have enough funds to initiate hedging and create an average. Thus, it works as a safety net.
- Furthermore, do not invest all your money at once and in the same product or asset. Diverse your funds and reduce the risk of losing money.
- Never take loans and invest in the market. It will tear away your profit quotient and push you into an eternal debt cycle. Think about it like that the annual interest offered by investment in stocks is 9 to 12 per cent, while the personal loan may charge 16 to 21 per cent. So, an investor incurs losses.
- Do not invest more than 10 per cent of your total budget on an asset that may amount to risks.
Risk tolerance while beginning investing
It is mindful of carrying a fair idea of your risk tolerance while beginning investing in the financial market, even if it is a fixed deposit in a bank. There have been incidents in the past where banks went bankrupt overnight. Lehman Brothers is one such illustration. However, every investment comes with different levels of risks. Their direct correlation is with returns. The no risk and no gain phenomenon applies here.
Thus, a trader needs to find a balance between making massive profits and be ready for the risk that he/she can tolerate. For instance, bonds come with considerable profit guarantees and low risks. So, ideally, for beginning investing, it is the best instrument for a beginner.
However, returns are lower compared to real estate or stocks, where you have the chance of making huge returns in a short time if their market inflates. However, bonds have a fixed expiry date, and everything is categorically mentioned.
The time frame is important for investors. A savings bank account has the least risk, but rewards are even lower.
Thus, an investor should acknowledge the quantum of risk factors and tolerance and then decide to enter the market.
Best way to start beginning investing
As a beginner investor, you should know your limitations and strong points. So, you can join some online courses or study the market on your own by observing different trends of the market. Patience is the biggest virtue and asset. Also, the investment goals should be sophisticated for investors.
For example, if you have enough savings and high-risk tolerance, you can start with indices trading as a beginner. It Is safe compared to other markets but gives enough insights regarding the financial markets.
Do not rush while investing
Some people invest in the financial markets looking at their peers and wealth earned by them. However, they ignore the hardships faced by them during the journey to become rich. So, while beginning investing, you should take small steps. The details lie in small things. Therefore, beginners must initiate cautious steps and look at veterans for learning lessons of investment.
When you are investing in stocks, forex, commodities or any other financial instruments, it is necessary to go slow. Investing too much money at once during the nascent stage of an investment career can drain all your funds at once. So, keep calm and never rush.
Control over emotions
A beginner investor has all emotions going in mind. There’s zeal, excitement, enthusiasm and nervousness at a time of investment. And if any of them goes out of control, it can compel you to make a wrong decision. So, irrespective of the market, as a beginner you must focus on learning the nuances, whether there’s a bearish or bullish run. If you can cap your emotions, you can earn money in any of the market situations, whether it is down or up.
If you are beginning investing, never think about going for leverage, It is strictly for experienced traders. Also, it comes with a short term goal. Any short term idea can reflect losses on your bank account. Leveraged investment is laced with greed where you spend a little amount to earn magnifying profits. It can entrap you in losses.
While beginning investing, an investor should carve strategies for investments as per his/her understanding of the market. There should be a goal for the investment, like 6 months, one year, 10 years or even more. Based on them, one should pick a product or instrument for investment. For example, investment in real estate generally requires a long-term investment. So, if anyone has enough funds and can wait until retirement, real estate is the thing for them.
Moreover, long-term investments also cut short the element of risk. For a shorter duration, people always have options like stocks, commodities and others.
Before beginning investing in financial markets, it is important to realise how much are you willing to risk. Also, see your funds in your hands and leap ahead. Moreover, it is advisable to go for a long-term investment, because they are less riskier and profits are bigger than short-term ones. So, if a query like how to start investing arises in your mind, pick up a suitable investment strategy and brokers like ROinvesting, 101investing and HFTrading.