As a new investor and wanting to invest money is the best thing you have thought of. Next is where one should start investing because there are so many options to investments.
There are more than 500 mutual funds and more than 3000 stocks to choose from. It not only makes choosing difficult but more importantly the choice you make, leaves you a feeling that other choices were better.
So we tend to avoid the difficult part which is to make a choice and rely on others to make that decision for us.
As an investment mantra, never rely on others for investment ideas, it has never worked in the past and it will never work in the future either. Everyone on this planet wants to make money and so if you rely on them blindly to make money for you, you are on the wrong planet.
If you are looking for investment advice, go to your parents, they may give you outdated advice which may provide you less return but it won’t wipe your capital.
So if you are starting your investment career, here are few critical points to consider.
Invest in Debt
If you have debt and you are paying a fixed income on the borrowed money, you should consider investing in your debt as the first choice of investment.
If you are one of those persons who want to be doing the arbitrage of getting money at lower cost and then trying to make better returns in the market, you are trying to trick the financial system and it doesn’t work at least in India where the cost of money is 10 to 12% rate of interest. In the US where the cost of money is 10 times cheaper, it may be considered. Warren Buffet can manage to borrow money and invest but it isn’t something that you can do on the first day of your investment career.
I always have the view of no borrowed money and it hasn’t changed for decades now. Here are some of the articles that I have written over time that says on the same line.
- Home Loan Or House Rent – How to Make The Right Choice
- 3 Factors to consider before investing
- Stay Invested or Pay Back Home Loan?
And then recently I shared about financial freedom re-iterating that one should invest in their debts. Here I am today stating the same point. It is the basic first step towards investing.
Invest for Big Purchases
We Indians are fascinated about owning a house. The first investment of most of the Indians is a place to live which is be either the flat or a house.
Most of the middle-class Indians are in home loan debt. Housing finance companies are one of the best-performing companies in the stock market and there shouldn’t be any surprises for them doing so well.
Real estate was one of the better performing asset quality in Asia as a whole for the quite a few decades and we have grown up seeing our dad or uncle’s make a good fortune investing in real estate.
To add fuel to the fire, renting agreements in India are possibly from the 18th century and it isn’t very conducive to live on rent in India either.
All these factors lead us to own a residential property and there is nothing wrong with it either. I also own one. The irony is, the day we accumulate 2 to 5 lakhs, we tend to book a flat that is worth 50 to 75 lacs with the assumption that 85 to 90% of the amount will be financed by the bank. So the real estate becomes more of a liability than an asset and the price appreciation will be all eaten up by the bank.
I have shared details of how much one should contribute to purchase of a property.
If you want to buy a house or a super luxurious car or want to be doing a luxurious world tour, you shouldn’t be thinking about where you will get the money from. You should invest in it and have the money ready when you want it. Invest with a goal in mind.
Invest in Your Education
The last but the most important aspect of investing is to invest in your education.
In the 90s, there wasn’t any foreign money in the market and so it was all retail investors investing in the market and so it was that much easy to invest in the market because the focus was who has the information about a stock first and invested before the others but in 2017, the advantage of information doesn’t exist. There is nothing that an FII can know more about a company that you can’t. It’s just that you have to make the efforts.
Everyone wants to be investing in the next Eicher motors or next MRF or next Lupin but those who invested in them did the groundwork about knowing the company.
If you aren’t investing in your education, do you think you can beat the foreign investors or the domestic fund managers to identify such opportunities well in advance? If you expect opening a demat account with a broker is enough, you are expecting way too much.
There is so much to learn and understand in the market. I have been investing in the market for a decade and doing fairly well to generate some kind of returns but I am still learning the process of investing.
Forget about me, even Warren Buffet after 65 years of experience is one of the sound readers on a daily basis. There is no limit to how much you can know but there is definitely a minimum that you must know before you should put your hard earned money in the market.
As a new investor, it isn’t to hit the nail on the head in the first investment but the more important aspect is to learn the process of investing and make a habit of investment.