A few things that you should know (or do) as a New Investor
Start investing now – Immaterial of what your age is, you should start investing as soon as you know about investing. Most of us know that investing as much as possible, as often as possible and leaving it invested as long as possible is the ONLY secret to good investing. We did not learn this directly, but we learnt compounding which taught us that ‘n’ was more important than ‘r’ simply because n was in the Power of the equation!
If you have no clue about investing and you come from a family that has never invested, it is sensible to get an advisor. Get an advisor who has 10-12 years of experience at least. He or she will keep you grounded in a bull market and build up your courage in a bear market. Think of him as a Financial Coach to whom you can turn for all your money questions.
Make goals sheet – the way you invest for your daughter’s education after 10 years is going to be different from investing for your retirement after 24 years! The money needs to be saved differently for the car that you want to buy in 4 years! For different goals you allocate your investments in different ways.
Investing in simple Index funds is a great way to start your investment journey. Investing in an index fund means you are investing in the best companies of the category. The BSE index comprises India’s top 30 companies and the Nifty 50 represents India’s top 50 companies.
Once you start investing and understand investing and being comfortable with equities you can get into more complex assets. Thus even though you start with Index investing, it does not mean you have to be there all your life. As soon as you are comfortable you can invest in things like large-cap funds, mid-cap funds, multi-asset funds, etc.
Learn about taxation of investing. Should you invest in your children’s name, parents name, clubbing, when to withdraw, capital gains, etc. are as important to know as investing. Not all Chartered Accountants are attentive to changes in taxation of investments, it is important that you LEARN and implement the learnings in your own investment management.
Be sceptical about anything that you see or hear – whether it is your banker, advisor, blogs, vlogs, magazines, etc. Reading good books on investing is much better than reading articles on investing. Even worse is reading Fund Manager commentary of the situation of the market.
Accept that you will lose money in equities – and make sure that your parents, wife, children know and understand that this will happen. The support that you need from the house is very important. If you don’t involve your immediate family they will be scared and scare you into doing completely wrong things. Being scared is fine, but panicking and selling is the worst thing you can do in a down market.
PV Subramanyam
Writes as www.subramoney.com and has authored the best seller 'Retire Rich - Invest Rs 40 a day'.