Investing money is not rocket science. Investing is simple but the path is daunting. It is like a challenge for some people but for others it is overwhelming. That’s why I am writing this article to get a solid grasp of investing for all. When somebody thought to get knowledge on how to invest money it is always better to start with the basics.
People went to the internet in this digital age for all information. There are different ideas in investing in different peoples. But I will try providing the structured information on Investment basics.
It is always better to start this process with some baby steps. We don’t want to learn the wrong way because the information is too much. For investing money, first, we have to increase our financial intelligence.
Now, from where we can get financial intelligence?
Investment is a very big subject in itself and we cannot understand quickly. It took me more than one year to write this article on investment basics. There are three major and logical questions in investing.
- What is Investment?
- Why we must invest money?
- Where to invest money.
WHAT IS INVESTMENT?
Investment is to buy assets with the following objectives:
- To generate Income
- Capital Growth
In investment, these two objectives can neither achieve immediately not simultaneously. It will achieve over the time step by step. The concept is:
- You have surplus money.
- Use to buy assets
- Assets will yield return
- Assets will grow over the time
Anyone can start an investment with as low as possible. One can start investing just with 500/- only. Invest 500 monthly over a longer period of time. Your wealth will increase automatically with the help of the power of compounding. (Click here to read more on the power of compounding).
The actual hidden concept of investing money is a little different. It says buy assets or invests money when the price is undervalued. It means that when you buy your assets it will yield high returns.
But the opposite of this is if you buy overvalued assets it will yield a low return.
WHY WE MUST INVEST MONEY?
Building wealth in the long run actually done by only Investments. Buy good assets that yield a good return. Above all, the investment must be done for some purpose or goal. Investing your money without any goal will give you nothing. Even more without a goal, you may spend your money on needless things.
That is why the experts say to achieve something in life you must have goals or targets. Without any goal your life is meaningless. That is why it is extremely important to have goal-oriented investments.
WHERE TO INVEST MONEY?
The main purpose to invest money is to buy income-generating assets, those assets whose value will increase in the future. If we buy assets that are depreciating it will not yield any return to you. Even it will take money from your pocket. So we must know well about income-generating assets and depreciating assets.
There are many ways for income-generating assets:
Equity is stock or mutual funds. It has been seen that over a long period of time it gives a very good return. Equity investment is risky; the Risk of loss of money is too high.
How to manage and overcome equity risk?
It can be done in two ways:
- Buy stocks when prices undervalue.
- Hold it for a longer period of time.
If you buy undervalued stocks for a longer period of time it will yield high returns. And also whenever companies are in profit it will share their profit with investors with dividend returns.
It is not necessary that the company will give you dividends. If the company registers less profit it will never give you dividend returns. Or in case company register loss, then there is a high chance the investors may lose their all money. This is the risk involved in equity investment.
You can also invest your money other than equity investments like:
- ULIPS or other precious metals
- Real Estate
- Debt-based plans.
These investments depends upon person to person that how much they can afford these kinds of investments.
CONDITION FOR INVEST MONEY
Anyone who wants to invest money either in equity or other investment plans must pass the condition of investment. The condition is you must be debt-free. Little debt is ok but more is bad always.
The debt will consume all your hard-earned money. Either you are investing or saving. So if you are in debt right now, then try to become debt-free as soon as possible.
Always remember debt drains your money. To build wealth your debt tap must be closed.
Investing is not tough if we understand it well. And if we take baby steps it would be easier.
Getting knowledge of investing is good for our financial health. The more we learn the more we understand how money works.
To build wealth & become rich is only done with proper financial knowledge. With proper financial knowledge, we can build a strong equity portfolio.
Why the equity portfolio? Because it helps to beat the inflation rate in the long term and helps to build wealth.