Introduction : Congratulations on landing your first job. As the stepping stone to a long career — one that could see you rise to new heights & success — you also have dreams you wish to accomplish. A comfortable car, a new home, higher education, happy retirement & others. And while your investment goals may be as unique as the journey you take to reach them, here are ten golden investment rules to help you get where you want to be.
1. Create a Financial Plan : Build a financial strategy that includes your goals, investment timeframe & risk appetite. Knowing your risk profile is important when creating your financial strategy. Get to know your comfort level with risk & how much risk you need to take.to achieve your financial goals.
2. Start investing at the Earliest : When it comes to investments, the earlier you begin, the more benefits you stand to gain. Start investing now to allow the power of compounding to reap returns at a later stage. Investing in Equity & Equity-oriented mutual funds coupled with the power of compounding can help grow your investments into a substantial sum of money over time.
3. Diversify : You may have heard the saying, "don't put all your eggs in one basket." This principle also applies to your investments. Diversification is essential when investing as it ensures that any underperformance by one asset class could be offset by a good performance from other assets in your investment portfolio. By investing across asset classes, such as equity, fixed income, gold & alternate investments, you can achieve good returns with a balanced approach to risk.
4. Stick to Asset Allocation : Starting from your first job, you may have goals to achieve. Every goal may have a specific timeline. Your short-term goals could be achieved within the next year, medium-term goals in the next five years and long-term goals beyond five. Hence, choose suitable asset classes depending on your financial goals. Consider your risk appetite, time horizon & financial objectives in deciding the right asset allocation mix for your portfolio.
5. Know your Taxes : Your salary may be subject to tax & hence, knowing where & how much of your income is taxed is important. Learn more about investments & products that offer you tax benefits & tax exemptions offered under various sections of The Income Tax Act, such as those for Equity-Linked Saving Scheme - ELSS funds, Life insurance premiums, etc.
6. Be Informed : Do not invest in any instrument or asset class you don't understand. It can be a good time to learn more about different kinds of investments, potential rewards & the potential risks when investing. Knowing how your investments make money or how losses could happen is essential. Being informed can help you make smart investment choices.
7. Explore Mutual Funds : A mutual fund is a financial tool that pools money from many investors to invest in different assets such as equity, debt or gold. Mutual funds are simple to understand, affordable & offer professional management all combined in one. But more importantly, it also gives you instant diversification & liquidity. You can also choose to invest regularly through a Systematic Investment Plan (SIP's) or a lump sum amount as per your convenience. SIP is a good option for investors looking to instill discipline into their investing habits. Getting the freedom to choose schemes of your choice depending on your financial needs & risk-bearing capacity is the most significant benefit that mutual funds can offer.
8. Think Long-Term : When investing, consider doing so for the long run. It can ensure you are not hassled about daily or weekly stock market volatility. Stick to your financial strategy despite market movement that can help you focus on your long-term goals & time horizon.
9. Invest Regularly : A good way to discipline your investment habits is to ensure you make regular investments. It can help you beat market volatility, especially if you use Mutual Fund SIP's or choose to invest in stocks systematically. As you contribute small portions of your money to your investment portfolio regularly, you will be able to create a corpus over time without taking the pain of investing a large sum at one go.
10. Review your Strategy Periodically : Since no one can control market fluctuations, political environments or the economy, change is a constant that you can expect. You can consult with a financial advisor to help you review your strategy regularly. Consider your financial advisor as your expert navigator on your investment journey. Through their expertise & financial knowledge, you will know where you stand financially & what you need to do to reach your goals successfully. Many brokers or financial distributors also offer their recommendations on investments, diversification, asset allocation, etc. online for both first time & experienced investors. They also generally track & review their recommended investments to take them to closure. Investors can also take benefit of this facility.
In Conclusion : Following the above ten fundamental investment rules can increase your chances of building wealth & meeting your goals successfully. Above all, motivate yourself to keep your eyes on the larger picture to make smart investment choices despite market ups & downs.
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