New to investing? Here are answers to 7 questions that really matter, before you take the leap and start investing. Read on to know more.
As a newbie investor, being paranoid is inevitable. What if? How must I? When can I? These questions will pop in your head like corn kernels in the microwave. And more often than not, you are likely to use your judgement to proceed.
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The thing about investing is that it isn’t really taught in schools or any educational institutions. Yes, you could possibly possess a high flying degree in finance and know a lot about the stock market. But real life investments are far from what you’ve read in those rusty textbooks.
Although there are plenty of investment options such as Mutual Funds, Fixed Deposits, ELSS and the likes, you run the risk of getting confused while making your first investment. But, amongst the scattered pieces of scrambled eggs inside your brain, you only need to be asking yourself these 7 questions that matter while investing.
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Why are you investing?
Without having an end goal in mind you will never be able to get the most out of your investments. In simple terms, you will not be motivated enough to take the first step, leave alone re-investing your earnings.
So, always ask yourself the reason you are investing for. It could be anything from saving for an international holiday, your child’s education, your own retirement or to buy a new house or to buy a car!
Additional Reading: Handling Investments When Your Goal Is Close
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How much to save?
Before you even consider investing you need to ascertain your savings. How else will you be able to invest if you aren’t already in the habit of saving money? Well, to invest you need to have enough money which is already saved up.
So, start by calculating how much money you save on a monthly basis. This amount will be the amount you can afford to invest regularly. Make sure that you keep this amount fixed else it will hamper your investment plan in the long run.
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Where are you saving currently?
Are you saving the old-fashioned way by putting money in a Savings Account? Well, there’s nothing wrong in doing so, but your returns may be limited to just the basic interest you would earn on your Savings Account.
Before you start investing, it’s best to check your current status on your savings and calculate your returns. Based on how much or how little you make through these saving options, you could consider moving to a better investment plan.
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What kind of investments are you interested in?
There are different kinds of investors. Some love to take high risks while others are risk-averse and prefer conventional methods. So, based on your risk profile, you should select the right investment product.
It will also depend on the tenure of the investment. Some investments have lock-in periods and are long-term investments. You can also choose a product that doesn’t have a very long maturity period.
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How do you diversify your investments?
We all know that investing in shares or the stock market means signing up for a volatile adventure. So, you shouldn’t consider investing your entire life savings into just one thing. Always diversify your portfolio. This way you will also be able to diversify the risks attached to each of these products.
Additional Reading: Does Your Portfolio Need A Rejig?
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How much do you earn?
It is important that you invest based on your earnings. If you are a salaried individual, it’s easier to calculate your monthly earnings because this remains fixed. For people who run businesses or are in other professions, they will have to calculate the average number based on earnings made through the year.
This calculation is important because it will help you understand your income vs expenses and the amount that you will be able to spare for investing.
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Are you on course?
The key to success is consistency. But if you have a history of being inconsistent with your finances and often find yourself trapped into Credit Card debt and the likes, then investing isn’t for you.
However, you can always come around and start making better life choices with regards to your finances. You need to be diligent with your repayments, frugal when it comes to spending on your Credit Card, and not indulge unnecessarily.
Ready to take on some heavy-lifting investments to secure your future?