It might get challenging to begin investing in the markets from a young age. Your source of income needs to provide for bills, rent, mortgage, and other miscellaneous incidentals, leaving you with barely any savings. To add more to the chaos of barely saving anything, there’s another challenge faced by young investors – faced with an array of investment options at their disposal. This might make things too intimidating for investors. However, one must not forget that when it comes to investing, the earlier you start, the better as higher are the chances of earning significant returns. If you think it would be too much to begin your investment journey from a young age, here are a few investment principles that can help you with your investment decisions.
Principles to get an early start on your investments
Here are a few principles that can give you a head start with your investments:
- Decide the style of investing
As an investor, you can either go forth with the active style of managing your investments or the passive style of managing your investments. Active style involves the buying and selling of stocks basis the market fluctuations. Though it allows investors to go for money-making trades, diminish their risk exposure, and generate capital in the short run, it also requires constant monitoring and reviewing from an investor’s end. What’s more, an investor needs to be endowed with proper knowledge and expertise about the functioning of the markets. Contrary to that, passive style focusses on long-term gains and rather than beating the markets, passive style focusses on yearning returns like the market. - Clearly define your financial goals
You must not invest in markets for the sake of investing. Your investments are likely to flourish better if you invest to achieve a particular goal. This is because in the former case, you are likely to exit the markets at the slightest volatilities in the markets. However, if you invest in mutual funds to achieve a particular financial goal, you are likely to stay put throughout the investment duration. - Understand your risk profile
Investing in markets requires an investor to fully understand their risk appetite. Risk profile refers to the amount of risk an investor can afford to bear. It is subjective in nature, which is highly influenced by an investor’s income levels, debts, mindsets, expenses, etc. Investors who are burdened with a lot of dependents or debts might have a lower risk profile. While an investor who is entirely debt-free, with hardly any dependents might have a higher risk appetite. - Lay out the time horizon
Time horizon refers to the time an investor is expected to hold their investments to reach their financial goals. You can determine the time duration of your investments basis your financial goals. Basis your time horizon, risk profile, and financial goals, you might be able to choose the right type of investment for your portfolio.
- Understanding the different types of investment options
It is easy to get overwhelmed with the wide array of investment options. If you are looking to achieve short-term goals or if you have a low risk profile, you might consider investing in fixed-income instruments such as debt funds. Contrary to that, if you are looking to achieve your long-term investment goals or if you have a high-risk profile, you might consider investing in equities.
