Investment avenues should always be treated as tools which will generate good returns over a period of time. To take a short term view would be fatal. In the stock markets, prices fluctuate very fast for the lay investor. To get the maximum returns begin with a two-year perspective.
Begin with an understanding of yourself.
What do you want from your investments?
It could be growth, income or both.
How comfortable are you to take risks?
It's only human if your first reaction on an adverse market movement is to sell and run away. To shield yourself against short term trading risks one has to take a long-term view. Renowned experts such as Benjamin Graham and Warren Buffet rarely shuffle their portfolio unless there is some change in the fundamentals of a company. Once you see the kind of returns you can generate over time, you'll come to realize that it really doesn't matter if your stock drops or rises over the course of a few hours or days or weeks or even months. Mutual funds are a good way to begin investing in the stock market. Funds render investment services with professionalism and give a good diversification over many sectors. If volatility is not your cup of tea, then you might consider buying fixed income securities.
Planning and Setting Goals: Investment requires a lot of planning. Decide on your basic framework of investments and chart your risk profile.
Ask yourself: What is the investment "time horizon"? Time horizon is the time period between the age at which you would like to start investing and at the age by which you would need a consolidated amount of money for any said purpose of yours.
One should also find out if there are there any short-term financial needs?
Will be a need to live off the investment in later years?
Your investments could be for retirement, a down payment for a house, your child's education, a second home or just for incremental income to take up a better standard of living.
Make clear-cut, measurable and reasonable goals. Be more specific when you decide your goals. For example you must reasonably predict how much amount of money would require and at what time inorder to satisfy any of the above stated needs?
If arriving at these figures looks cumbersome or daunting, our online interactive calculators will help you figure out your future money requirements. The answers to the above will lead you directly to “The type of investments will you make”.
Is time on Your side ?
The time frame you seek to invest on, your investment profile and the moblizable resources are interdependent and are not mutually exclusive.
How much time do you want to spend on investing?
You can be active, allocate an hour every day or just spend a few hours every month.
Another important factor is when do you need the money?
To help put all of this into context, you also need to look at how various types of investments have performed historically. Bonds and stocks are the two major asset classes that have been used by investors over the past century. Knowing the total return on each of the above and the associated volatility is crucial in deciding where you should put your money.
After you zero in on your investments its time to decide on how much money you want to invest. Setting investment goals and checking out on allocable monetary resources go hand in hand. It is necessary to fix your monetary considerations as soon as you decide on the basic investment framework.
Some of your basic monetary considerations could be:-
The amount of initial investments that you can pump in.
The sources for the money that you need for investments.
The foreseeable bulk expense which prevents you from saving or which may force you to liquidate your existing portfolio (this expense itself may be your investment goal).
Money that you need to have as back up for emergencies.
The amount of savings that you can afford to allocate every month on a continual basis for such number of year that you may desire.
Answers to all or atleast the most important of these would logically lead you to where you ideally have to invest your money in, can it be equity, mutual funds or bonds.