If investing is entertaining, if you are having fun, you’re probably not making any money.
Good investing is boring.”- George Soros
The quote says it all, the best investment for any beginner is in boring stocks. Many investors enter the market expecting a huge return on their investment in the shortest amount of time. And all of this at a zero risk to their initial investment. However, high-returns at low risk is an improbable combination. Since there are several different types of assets in the market it is only natural to be overwhelmed. Understanding the different available assets is a good first step.
Broadly, investments can be in:
- Physical Assets like Real Estate, Gold, Jewellery etc<
- Financial Assets: Mainly Fixed Income Assets like FD, PPF, EPF, Insurance &
- Market Linked Assets like Equity, Mutual Funds, Bonds & Derivatives.
Let’s understand the different market-linked investments:
- Shares/Equity: Buying Stocks or Equity of a company gives you ownership of that company. This is a volatile asset as returns are not guaranteed. It is important to understand which is the right stock for you. Understanding the timing of when to buy and sell are crucial here.
- Mutual Funds: The Investor is the Unit Holder. The funds from many different investors are pooled together and so the profit generated is also distributed among everyone. Your return will depend on the number of units you hold. They provide relatively steady returns, are less volatile & hence less risky than direct equity. Additionally, there are several different types of Mutual Funds to help meet the various needs of an investor.
Bonds: These are Fixed Income Instruments issued by the government or a company. The return from these funds is at a fixed rate of interest and for a specified amount of time. These assets have assured returns.
- Derivatives: Derivatives are securities that derive their value from an underlying asset or benchmark. They are an investment which hedge against risk and can be leveraged. They help diversify your portfolio. But on the downside, they are hard to value, difficult to understand & sensitive to supply and demand.
It is always prudent to select an investment that would align with your financial goal. The type of instrument you chose would also be influenced by your capacity to risk the funds. Today there are numerous ways to seek professional advice & recommendations to help make the right investment. Let your money work for you!