A Quick Guide on Investing
By Team iDiva
You buy your dream shares in the stock market. You invest your entire life savings in these blue-chip companies. You plan to sell these shares for almost double their value in five years. You pat yourself in the back for being such a savvy investor.
And then boom! Five years later, the stock market crashes, people lose money, your entire portfolio loses its value and your hard-earned money is now worth nothing. What will you do now?
What can be done
If you are indeed a savvy investor then you will base all your investment decisions on the word ’diversification’. That means that when you want to put your money to work, you will not send it to do just one job.
You will put part of your money in equity that is the stock market, and part of your money in debt, that is instruments like government bonds and municipal bonds, and then set aside another chunk for real estate or jewellery or luxury collectibles like art.
Different asset classes mean you can enjoy the advantages of each asset class and divide your risk so if one class loses value, you can still fallback on the others.
How? Where? Whom?
How do you know in what proportion you can allocate your asset classes? The general rule of thumb is to allot a higher percentage (in the range of 60%) to risky assets when you are younger.
As you get older its safer to invest a higher proportion to less risky assets such as debt instruments or PPF. If you want to invest in a disciplined manner then don’t take the advice of just your Uncle’s friend who happens to know some broker somewhere.
The wise thing to do
” Do yourself a favour and go to your bank and ask for a financial advisor. ” Watch and read business news.
” Empower yourself with knowledge and know what you are getting into, without taking at face value the advice that anyone throws your way. ” Use mutual funds since they have professional people managing your money, especially if you are unsure about which stock to buy.
What they do
In the end always remember the words of Warren Buffet, the billionaire investor and the richest man in the world, ’You only have to do a very few things right in your life so long as you don’t do too many things wrong.’