How do you learn how to invest? What are some tips for a younger person interested in investing?

Learning to invest when you are young is a very positive step towards creating wealth. When you invest early on, time is on your side, and the money you save today has several decades to grow. This is possible due to compounding, a very simple yet powerful concept in finance.
Effective financial planning requires discipline, understanding of one’s finances and time. Hence, the sooner you get started on it, the better it is for you in the long run. Here are some tips for a person just beginning to invest:
a. Assess your financial situation: First and foremost, remember to “save before spending”. Keep a budget and get an idea of the amount you can save every month. Since you are young, you have the freedom to save more and should use this to your advantage. It is equally important to get an understanding of finances. Read books to understand investing. Set some time aside daily to learn about investments and the various investment options available to you. Familiarize yourself with the terms connected to investing.
b. Understand your risk profile: When you have assessed your finances and understood the basics of investing, you should make time to evaluate your risk profile. Not everybody is comfortable with investing in high-risk investments. So, it is your prerogative to decide how much risk you are willing to take based on your priorities.
c. List your financial objectives: Make a list of your financial goals. Categorize them according to the time required for reaching fruition. The broad categories can be Short-term, medium-term, long term. Remember to sync your financial objectives with the risk you are willing to take. For eg: If you are a risk-averse investor, and want to plan for retirement, you can probably invest in Public Provident fund (PPF). But reaching your end goal through PPF will take much more time than say if you were to invest through ELSS funds. So, account for that time while setting your goal.
d. Link your financial goals to specific investments: Investments should always be linked to your financial goals. Prioritize investing for the long-term as it gives more time for money to work for you. Higher the risk associated with an investment, longer should be the time horizon linked to that investment. For eg: goals like retirement and wealth creation are long term ones, so linking them to equity mutual funds will be sensible and fruitful. While investing in mutual funds, invest through the SIP (Systematic Investment Program) route in a bid to circumvent volatility. Start small and build slowly as and when you have more funds.
e. Review your financial portfolio periodically: It is very important to appraise your portfolio at regular intervals. By that, I don’t mean you should check it daily. Just keep a check on it either quarterly, every 6 months or once every year. This is essential because as we grow our priorities might change and certain objectives may acquire different timelines. Whatever may be the case, investing will be incomplete without a thorough review of your portfolio occasionally.
Previous
Next Post »