Investment plan for beginners: A step-by-step guide

Warren Buffet aptly said, “Risk comes from not knowing what you are doing.” The quote implies that you can stay ahead of the game if you know exactly what you are getting into. Not knowing the same, however, can land you in trouble. This is why you need a plan to make smart investments and follow them through to achieve your goals.

There is no one-size-fits-all investment strategy that will tell you how to invest money, fetching you the result you want to achieve. However, a step-by-step investment guide can definitely assist you in kickstarting a successful long-term investment journey, especially if you are a first-time investor. Let’s get straight to it.

When is the best time to start investing?
 

The process of investing stretches far beyond picking a few stocks to park your money in. It extends much farther, in fact, and requires a deeper look into your finances. Simply put, making smart investments can be defined as putting your money to the best use to produce the best possible result.

By all means, the best time to invest your money is right now. This will give you the advantage of earning compound interest. Many financial experts correlate the benefits of compounding your money to the sport of swimming; the longer you practise swimming, the easier and faster you can swim. Similarly, the longer you allow your money to grow with a compounding effect, the more returns you will gain.

Ideally, it makes sense to allocate a portion of your income into investments that grow with time to generate wealth for you as soon as you start earning. That said, it is never too late to start investing. So make the best use of your time now by following this step-by-step investment plan targeted at first-time investors:

Step 1: Understand your current financial standing
 

As a first step, collate some important information about where you stand currently, financially speaking. You need to take a good look at your current financial situation by keeping certain factors, such as income, expenses, debt, emergency funds, etc., at the forefront. To arrive at a reasonable amount you can afford to invest every month or every year, start by creating a budget that lists your monthly disposable income after all expenses and emergency funds.

You should also factor in repayments such as loans or other debts that require you to have sufficient funds on hand. Consider investing in liquid investments like stocks in such a scenario, which you can easily exit as opposed to real estate.

Step 2: Clearly Define Your Goals
 

Everybody has a list of financial goals that they aspire to achieve. What better way to achieve them than by making meaningful investments from time to time? However, your investment strategy is influenced by your financial goals to a large extent. These can be broadly classified into short-term, medium-term and long-term goals. Short-term goals are saving up to buy a car or go on an overseas vacation. You need not invest heavily in the stock market to achieve these, as you may be looking to fulfil them within a year or two.

A medium-term goal would be something like saving for your children’s education. On the other hand, retirement is a long-term financial goal and will require proper investment planning. In fact, having an investment portfolio targeted toward retirement planning is a must if you wish to retire with a significant corpus that can help you live your golden years comfortably.

Step 3: Decide which type of investments suits you best
 

Although there are plenty of investment options available in the market, here are three popular choices that every first-time investor must look into:

• Stocks: By purchasing a company’s stock, you claim part ownership in that company under your shareholding. If the company’s profit grows, and possibly the value of your investment and, ultimately, your wealth. Investors have made a lot of money by carefully hand-picking stocks that have helped them leave behind generational wealth for their families.
• Mutual Funds: Mutual funds pool money from various investors, which is then invested into a basket of stocks. Professional financial experts manage these mutual funds and try to maximise the profit for their investors,.
• Bonds: These are fixed income bearing instruments which give relatively stable pre-fixed rate of return. These are stable and not as volatile as stocks. The tenure of these bonds can be for medium to long term.

Your financial goals, risk tolerance, time horizon, and investment budget will significantly impact the type of investments you want to make. Make sure you diversify your portfolio by selecting a mix of investments, as you don’t want to expose yourself to a huge risk by depending on only one type of investment.

Step 4: Review your investments regularly
 

Investment review is an important part of financial planning. A review does not mean a necessary change but to reassess the existing goals, cash flows, expenses and ensure the current investments are put to best use. While the investments are for longer tenure, having the best ideas also impact the overall returns of the portfolio. This also ensure cutting losses and replacing with best available opoortunity.

Conclusion
 

By now, you would have got some clarity on how to invest money. The best investment suggestion for first time investor would be to seek help from a professional  this will ensure you don’t end up investing in wrong products. Alternatively you may educate yourself and once you have a good understanding you may start investing yourself as a DIY-investor

IDFC FIRST Bank offers a plethora of investment opportunities for all types of investors – fixed deposits, mutual funds, bonds etc. – that are backed by an efficient research team to bring out the best from your investments. Start your investment journey with experts by your side today for a secure future!

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.