Lets look at a list of Investment available to you globally.
- Direct Equity (Stocks / Shares) – High risk Investment with greater return in long run and volatility in short, Equity today is one of the easiest to invest in terms of accessibility with just a few clicks you can own a piece of Tech giants like Amazon, Apple etc. (not suggesting/recommending). A good thing for a beginner to Invest when starting with Equity is to invest in broader market indices like Nifty, Sensex (in India) and VTI, S&P 500 in US. By Investing in S&P 500 you can own a piece of 500 of the significant publicly traded companies in US.
- Mutual Funds – A mutual fund is made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. But be aware of the Expense ratio and hidden fees, they can eat a big chunk of your portfolio in long run.
- Real Estate – Own a house and rent it, while you wait for the upside. Real Estate is the physical asset that you can own and feel unlike the Stocks. But you need to research before investing, and you may need to learn something called house hacking to start with, where in you own a Duplex and rent one portion while you continue to live in other. And if you like Stock Market and hate the extra work to put in for the physical asset you may be better of owning the REIT (real estate investment trust), a company that owns, operates, or finances income-generating real estate. Modeled like mutual funds, REITs pool the capital of numerous investors.
- Commodities – A commodity is a basic good used in commerce that is interchangeable with other goods of the same type. For investors, commodities can be an important way to diversify their portfolio beyond traditional securities. Because the prices of commodities tend to move opposite to stocks, some investors rely on commodities during periods of market volatility. Commodities that are traded are typically sorted into four broad categories: metal, energy, livestock, and agricultural. When it comes to Commodity it is good to own a small portion of your portfolio in precious Yellow Metal – Gold to hedge against the paper money.
- Bonds – Bond is a debt security, borrower issue bonds to raise money from investors willing to lend for a particular period of time. Bond is a fixed Income Investments. There are wide variety of Bonds such as Agencies, Treasuries, Corporate, Municipal etc. A T-Bond, Treasury Bonds issue by U.S. Federal Government is considered to be safest of all, regarded as risk-free since they are backed by the U.S. government’s ability to tax its citizens.
Whatever you Invest in remember to diversify well, and also remember no matter what there will be a time where your investments may lose 50-70% of its value. The key to avoid huge downside especially with volatile investment like Stocks is Asset Allocation. Diversify not just across different investments but also within one investment.
Further to the list above, below are some great articles published by us to refer before Investment-
# 7 Ways to lose money in stocks
# Caution! Dalal Street Ahead
# Invest your Money
Also, a great Book that I can recommend anytime to dive deep into Investments for an ordinary man and achieve financial freedom is MONEY Master the Game.
Thank you for reading. Have a great weekend. Let us know in comments below, what is your favorite go to Investment.
Yes, you heard it right, there are things that you should avoid, no matter what its a Big No. Like Trespassing Area 51, or buying the stock of your favorite Pizza Chain. Just Kidding, there is more to it, today lets talk Stocks.
When it comes to Stock Market Investing you should do your due diligence before Investing and never listen to any random guy online, but trust me you can listen this random guy (me) on this one.
Below are the 5 mistakes every Investors should be avoid –
- FOMO (Fear of Missing Out) – As the name suggest it refers to the Fear of missing out on the Opportunity. It is one of most common mistake that a new Investor makes. Basically when you see a stock rally you worry that you might miss the boat and hence try to invest as much as you can to get your share of the pie. But often times it leads to unnecessary investment, and at times you end up buying stock way too higher than its intrinsic value.
- Panic Selling – Selling a stock when its price is low i.e. in a Bear Market. When a stock is undergoing correction or has been the victim of some bad speculations, we as an Investor turn on our Panic mode and again let the emotions rule our judgement resulting into selling of the stock when it is undervalued.
- Trying to Time the Market – The common mistake every Investor make is trying hard to time the Market and failing to do so (which almost everybody do). Rather a good Investment strategy is to invest consistently for the long terms and be patient about your Investments. Remember nobody can accurately time the Market, not even Warren Buffet.
- Sunk Cost Fallacy – Tendency to Invest in the fallen stock in order to recover the money invested. For example – I bought xyz corp share for INR 100 and the price fell to INR 50 in few weeks, without rethinking my strategy, doing research/analysis, I kept on buying more and more shares in order to average out the cost to be able to reap the benefits of future rise, But the future rise may never come.
- Failing to Diversify – One mistake every investor should avoid in long run is to invest only in a single sector or a very few stocks. One should diversify his/her portfolio in order to reduce the risk by investing in multiple sector so that if there is a Crisis or the Investment value goes down across one sector the other is there to back it up, hedging against the risk.
Greed, Fear, lack of Patience and often the lack of Understanding of the Investment is something we all should avoid as an Investor. A Investment should be done with all due diligence and rationality. Emotions, get rich quick schemes and lack of understanding is not good for any Investment. It is something I learnt the hard way, I too have committed to a few of the above mistakes. One thing you should always remember in the long run Market always tend to go up and hence by all means one should avoid emotions rule the decision making process. And if you are new to Investment, it is always a better idea to start with some sort of Index fund in order to lower the risk from Market fluctuations.
Bonus Content – One good Investment Strategy to follow during crisis like Covid is to be a Nibbler i.e. to keep buying small bites of a great company slowly as its share price fall, given it has enough cash reserve to survive the pandemic.
That’s all folks. Until next time, stay healthy, stay happy and keep Investing!
And if you are new to Investment you can consider opening a Demat Account at a brokerage firm like Zerodha.