Welcome to investing!
Updated: Nov 3
Investments enable you to increase your wealth and gain access to the potential of compounding (i.e. earning of interest on the money invested + interest already earned) while also outperforming inflation.
If you have the funds, you can begin investing right away. The earlier you invest, the longer your money has to grow. Conversely, investing a set amount every month can smoothen out trends in the stock market, especially in a speculative environment.
Investments may include a range of choices, including stocks, bonds, mutual funds, exchange-traded funds, and real estate, all based on your resources and risk appetite.
What's the significance of a personal balance sheet?
It provides a snapshot of your money at a certain point in time. This can help you effectively channel the flow of money and achieve your financial goals sooner and enables you control your spending in places where needed.
The 50:30:20 rule is an ideal method which helps understand the ratios of saving.
50% of your income goes after needs like rent and utilities, EMIs etc.
30% goes after your wants which are not necessary but can help make your life better like gym membership, vacations, food and movies. 20% should go after building an emergency corpus which should be at least three times that of your monthly income, post which the 20% can go after investing in SIPs, Stocks, Mutual funds etc. Following these ratios will help you organize your wealth in an efficient manner.
How to manage your portfolio?
It is vital to identify you risk tolerance and how comfortable are you with taking a loss. There are 2 main categories of investors:
A high-risk seeker can see fast gains, but also may face quick drops based on their choice of investment. Therefore, the people who fall under this category need to make a heavily informed decision in order to minimize their risk.
A risk averse investor prefers certainty while investing over uncertainty and high risk. Under this category, the person might see a slower gain but it will be safer as the risk alleviates.