Start investing as a beginner: A comprehensive guide 4 beginners
Thinking of starting investing but do not know “how to Start investing as a beginner?”
Steps to Start investing as a beginner
Hello, friends I’m Vishwas Bharadwaj and Recently my friend asked me “How can I start investing as a beginner?”.
So today’s today article we will try to understand the basic steps to Start investing as a beginner.
Of course, after this article, you will not become an expert but yes, you have some amount of knowledge and you will be able to start investing as a beginner.
1. Learn the basics of investing
Before starting investing understand some basic terminology about investing like:
Term | ||
1. | Stock/Share Market | The share market is a platform where buyers and sellers come together to trade on publicly listed shares during specific hours of the day. |
2. | Share / Stock | Stock: Stock is a general term that refers to an ownership interest in a publicly owned/listed company in the share market. Share: A single Unit of a listed company in the share market. |
3. | Mutual Fund | A mutual fund is a pool of money managed by a professional Fund Manager. |
4. | ETF (Exchange Traded Funds) | An exchange-traded fund (ETF) is a basket of securities that tracks an underlying index. ETFs can contain investments such as stocks and bonds. |
5. | Portfolio | A portfolio is a collection of financial investments held by an individual or organization. It can include stocks, bonds, commodities, cash, real estate, and exchange-traded funds (ETFs). |
6. | Investment Capital | Investment capital is the available amount of money that you have to invest. |
7. | Demat Account | A Demat account, short for a Dematerialized account, is a digital repository for holding and managing securities in electronic form. It serves as a bridge between your investments and the stock market. |
8. | Trading Account | A trading account is an online investment account that traders use to purchase securities and monitor trades. |
9. | Price | A share price, or stock price, is the amount it costs to buy one share in a company. The price of a share is not fixed but fluctuates according to market conditions. The price of a stock is determined by how many people want the stock and how much of it there is. If more people want to buy a stock, then the price will go up. |
10. | Return | In the stock market, a return is the difference between what you paid for an investment and what you receive when you sell it, plus any dividends that the investment paid you. |
11. | Holding Period | The holding period for equity shares can be: Short Term: A holding period of less than 12 months is considered short-term, Lond Term: A holding period of more than 12 months is considered long-term. |
12. | Holding | Holdings are the contents of an investment portfolio held by an individual or an entity, such as a mutual fund or a pension fund. |
13. | Taxes | When we buy and sell the share we need to pay some taxes like: STCG (Short-Term Capital Gains): If you sell the holdings before a year. LTCG (Long Term Capital Gains): If you sell the holdings after a year. DP Charge: DP Charges mean flat transaction fees regardless of the quantity sold. Read about more taxes: Taxation for Traders – Zerodha |
14. | Liquidity | In a simple way, it’s the indication of the flow of the shares in the stock market. |
I think now you understand a few basic terminologies.
2. Goal Setting
Do you accept that before starting any task goal setting is the most important thing?
So in the same way before starting to invest, we need to make a goal it may be a short-term goal like investing to buy your next mobile phone or your new car and may be a long-term one like a Retirement plan or Children’s education or marriage or something like that.
So before following the next step write down your goal of investing or just after reading this article do it. Also, write your goal in the comment section, and I will check.
3. Explore the investment option
Now this is the time to explore that okay we set the goal so now I will invest my money to grow it, Right?
So many options are there to investing but because you are a beginner we explore only a few of them, which are:
Option to investing | Ways to invest, Pros and Con’s of the option |
Commodity | In this segment, the investment in gold and silver is the most popular. Pro’s: 1. Easy to invest 2. Good return in the long term Con’s: 1. Low liquidity 2. Impurity concerns 3. Making charges 4. Security Concerns |
Real Estate | Pro’s: 1. Easy to invest 2. In the long term average return Con’s: 1. Low liquidity 2. Required huge amount to invest 3. A good location is necessary to make a good return |
Loan/Debt | Pro’s: 1. Fix rate of interest /Return Con’s: 1. Chances to default declaration by the borrower |
Stock Market | Pro’s: 1. High returns 2. High liquidity 3. Huge options to invest 4. Better returns in Long term Con’s: 1. High return comes with high risk 2. Huge options mean huge confusion 3. Over expectation |
Other | Eg. Start your own business |
4. Choose one or two investment options
Personally, I love the stock market so I assume that you are choosing the stock market to invest in after exploring the investing options.
So once you choose the stock market you have three ways to start investing as a beginner:
Ways of investing in the stock market | |
Direct share of the company | To do it simply operate your demate account and you can buy the particular stock from any exchange. Pro’s: 1. If the company performs well you get more and better returns. Con’s: 1. It has high risk 2. required to understand the working and financial analysis of the company. 3. You may need a much amount to invest. |
Mutual funds | If you don’t want to research and don’t have enough time for it. Then the mutual funds for you. Pro’s: 1. A professional fund manager manages your fund and they work for you. 2. You can start investing in more companies in less amount. 3. Choose mutual funds according to your goal. Con’s: 1. Because the fund manager working for you charges a few per cent of your investment amount which is generally between 1% to 3% known as expense ratio. 2. Most mutual funds are not able to beat the return of the index of the exchange. |
ETF | If you don’t want to research and don’t have enough time for it. Then the mutual funds for you. Pro’s: 1. A professional fund manager manages your fund and they work for you. 2. You can start investing in more companies in less amount. 3. Choose mutual funds according to your goal. Con’s: 1. Because the fund manager working for you charges a few per cent of your investment amount which is generally between 1% to 3% known as expense ratio. 2. Most mutual funds are not able to beat the return of the index of the exchange. |
I hope you are feeling much better after gaining some important knowledge about investing.
5. Choose the Investment platform
So now we need a platform to start our investment journey.
If you want to invest in mutual funds then you don’t need a Demat account you can buy the mutual fund units from the AMC directly.
But if you looking to invest in Stock or ETFs then you need a demate account.
6. Think about diversification
A very popular quote that I listened to was: ” Never put all eggs in one basket”.
Are you thinking that’s why I mention it here?
The answer is it refers to never investing all capital in a single stock or ETF or Mutual Fund.
The diversification in the portfolio gives us a hidden advantage that if our few pickups are making a loss then maybe some other pickups cover up the loss and make the profit for us.
7. Create Budget
Now once you set your goal so now you need to create your investment budget it may be $100 (if you are a student or started a new job or something like that) or maybe $10000 or more (if you have a high revenue source).
Metter is creating your own budget it may be more or maybe less as your financial conditions allow you.
So now suppose you created your budget of like $100 because you are a student.
8. Create an Emergency Fund
Suppose that you have $1000 in your bank account and after reading this article you think “Now I have learned about investing and now I will start investing and double my balance” and in these dreams, you invest $800 in the market.
And the next day suddenly you need $400 to help your friend or other urgent need what do you do?
Here the emergency fund comes to help you in such a time of emergency where you need urgent money 💵.
So before start investing as a beginner, create an emergency fund.
9. Start Investing as a Beginner
Now you may start investing as a beginner and learn from your experience and such types of articles or books.
Best of Luckjk you and your investment journey.
If you have any more questions write in the comment section I will definitely try to help you as much as I can.
Conclusion
Your thinking to start investing as a beginner is really appreciatable but keep in my that investing is a long-term process and it will take time.
If you think that you invest today $1000 and after a month your investment will be 2x or 3x or something like that then I suggest that stay away from at least the stock market.
If you want to create wealth then learn the stock market more and more and invest wisely, I believe that you will be wealthy one day, and don’t forget to say thanks on that day.
Bonus Points and My Opinion
If you ask me, my opinion and as I follow in my starting days go with the index ETF because it gives you the opportunity to invest in the index and because the index is made up of top companies that’s why it has low risk and a good return.
If in case you invest in the index and the index goes down you have an opportunity of cost averaging because the stock may be zero but the index will not which means your investment stays safe in the long term.