"Risk comes from not knowing what you are doing", said Warren Buffet who's the world's most prosperous investor. Investment is mastery and a skill that should be acquired by everyone as soon as they can.
The year 2020-21 was like a rollercoaster with stock markets soaring more than 80% from their pullbacks in March 2021 to the end of Fiscal Year 2021. Despite getting hit by the covid-19 pandemic, given the challenges are at the bottom of the pyramid, we have also seen an upward trend in the momentum which comes as a relief to some but as a surprise to many. There are various investment ideas that need to be considered.
2020 was a year for investment learning. People got time to research more about investment strategies and stepped up to invest in various stocks. Investment has become a trend in India now. According to a report by the State Bank of India, around 142 lakh new investors joined the stock markets in the financial year 2020-2021. Indians who used to traditionally choose gold mostly as an option to invest have now found a new obsession and that is the cryptocurrency. Crypto investments have grown from about $923 million in April 2020 to nearly $6.6 billion by May 2021, in India.
1. Before you go forward and start investing, you need to sit down and relax. Take an honest look at your entire financial situation and plan your goals and risk tolerance before you go for the investment process.
2. In 2021, you need to think smartly. Do not get swayed by the past year's results. By over-investing in one asset and under-investing in another can prove dreadful. Try to rebalance your asset allocation from time to time because the covid third wave is expected to arrive soon and it can cause some market panic too.
3. Start saving as early as it can be. Saving early through investments gives a useful benefit of the power of compounding. For example, if Person A starts saving from the age of 20-40, and Person B starts investing from the age of 40-65, you'll be able to see a huge gap in their returns. Even if Person A is investing less than person B, he will get higher returns at the time of his retirement and that is how compounding works.
4. Invest your time and energy too. If you want to be a smart investor, you need to take time and energy to invest regularly. Start investing automatically with every stipend or salary you get so that you are not falling victim to laziness.
5. Do not accept a stock tip. You need to do your own analysis on a company before you are investing your hard-earned money in it. Tips do sometimes work out but it all depends upon the reliability of the source. If you need long-term success then it always demands deep research on the company.
6. There are thousands of smaller companies who are capable of becoming the Blue chip names of the future. Few small-cap stocks also have historically shown better returns than their large-cap counterparts. Try to invest in them as well.
7. Investing in Pharmaceutical. From the past 4 years, we have witnessed the pharmaceutical sector emerge as a winner especially during the time of the pandemic, and proved to be a savior for all the investors with higher returns in 2020-2021. It is a smarter tip to invest in any pharmaceutical company. It can prove to be a very good investment.
8. The best time to invest in stocks is in the morning when the market opens. In the morning, the price of stocks is the lowest when the market opens and slowly during the day, it keeps on increasing.
9. Investing in the IT sector can be a great move. If you think smartly, you would know how the IT sector is rising with each passing year. With the increase in using smartphones, high internet speed, and interacting virtually, the IT sector is rising dramatically. If you're wondering where to invest money to get good returns, investment in the IT industry can be a good investment.
10. Try to rebalance your portfolio occasionally. Rebalancing your portfolio will ensure that it does not overemphasize one or more asset categories. By shifting money away from an asset category when it is doing well in favor of an asset that is doing poorly may not be easy but is a wise move.
Let us tell you some of the best options for investing your hard-earned money.
1. Direct Equity - Investing directly in stocks might not be suitable for everyone because it is a volatile asset with less assurance of profits. It is also very tough to choose the appropriate stock. The best silver lining is that direct equity has outperformed all other asset classes in the terms of inflation-adjusted results. To reduce the risk to a certain extent you can diversify across sectors and market capitalizations. Investing in stocks is a crucial process and you need to have better researching skills and knowledge.
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2. Equity mutual funds- Equity funds are market-linked securities. They are one of the most prominent mutual funds in India which offers high ROI by investing in shares of companies of different market capitalization. Equity mutual funds offer better returns but the risk involved in it is more.
3. Debt mutual funds- It is suitable for investors who are looking for steady returns. The debt mutual funds are less volatile and are considered less risky as compared to the equity funds. They are not entirely risk-free. Also carry risks such as interest rate risk as well as credit risk. Debt mutual funds invest in fixed-interest generating security such as government securities, treasury bills, corporate bonds, etc.
4. Real Estate- The house that you are already living in can never be considered as an investment. But if you do not intend to live in a second property you buy , it can be a part of your investment too. The location of the property is a very important factor that will determine the value of the property and also the rent that it can earn. It is one of the best investment ideas and has a bright future ahead.
5. Gold- Keeping gold in the form of jewelry has many concerns of safety and high cost. You can also buy gold coins as a part of your investment. Many banks sell gold coins these days which is an alternative to owning gold through paper gold. Such investment process buying and selling happen on the stock exchange with gold as the underlying asset.
There are various other options available where you can invest smartly. Cryptocurrency is one of them. It is an alternative to investing in gold coins.
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1. Mutual Funds- The Indian investment research conclave has stated that the mutual fund industry is expected to channelize individual savings going ahead. The growth makers for the Indian Mutual Fund industry are expected to pick up in the economy, higher disposable incomes, growing investor base, Deeper geographical penetration, and investible surplus. Better awareness along with the years of investing in digitalization would be a part of supporting growth. Mutual funds were introduced in the year 1963 in India. Since it was introduced we have seen exponential growth in the industry.
Mutual funds have a bright future ahead because every individual is not well-equipped with the skill to study the markets as well as make appropriate investments. It offers investors professional management along with diversification benefits and various funds to choose from a reliable source in order to earn returns over a short period as well as a long period.
2. Cryptocurrency- Another very important investment option we haven't covered in the above section is cryptocurrency. Cryptocurrency has become a global phenomenon in the present time. The pandemic has brought everything into digital. Cryptocurrency markets boomed in 2020-2021 as people were sitting at home and started playing with digital assets. Crypto is basically made for situations like pandemics because it doesn't care whether the airports are closed or open, whether people can go out or not. Pandemic has not affected where Bitcoin is heading to and where it is now. But it may be affected by cooperative and state adoption.
Bitcoin as an example of cryptocurrency is just going to natural progress we are seeing since the very start. We are noticing athletes being paid in crypto, various card brands allowing settlement crypto, and large investment firms also adding crypto to their portfolios. Soon governments are also expected to adopt crypto as a legal tender. Crypto has a bright future ahead and one should look into it.
Finally, to conclude this article we would like to say that it is very crucial to start financial planning at an early stage, especially in your early 20s. Starting your investments in your 20s is the best time. In order to receive higher returns, you are advised to invest regularly for a longer period until your retirement. Create incoming generating assets to achieve financial freedom.
If you haven't already started your investing, do it today, do not delay!