So, you have finally made up your mind to start investing. Now, you are just worried about where to begin investing. (Its easy to learn how to invest)
Honestly, there is a growing temptation amongst Gen Z to invest at an early age, which I believe is an excellent sign. Even better is that you don’t necessarily need fortunes to start investing. In fact, with the growing number of investment agencies, it is now easier than ever to start investing modestly from whatever savings you may have and gradually increase and diversify your investment portfolio as you better comprehend the intricacies of investment and trading.
Here in this blog, I will be helping to get started with your first rupee 5,000 investment in the stock market.
Why stocks?
Well, partly because it’s a great way to increase your investment portfolio and because the returns are great. Also, since we are only starting with Rs. 5,000, it’s the best investment opportunity for beginners.
Before we begin exploring the various stocks available for investing, it’s best to learn the evaluation of stocks and choose the ones that are most suited to your level and what you want to achieve in the long term. Not all stocks are the same, nor are all stocks meant for all types of investors. In fact, many stocks are overvalued, whereas others may have core issues like poor fundamentals, inadequate corporate governance, and other issues.
Thereby, when you are just looking to break into the stock market, it’s important to assess and determine the various stocks that are up for grabs and choose the ones that can help you achieve maximum capital appreciation or dividends.
Confused?
Don’t be.
As a newbie, you may feel a bit anxious knowing the various dynamic components of stock trading, but there is no rock science here. You just need a little time to gather knowledge and practice to get things started for yourself.
So, let’s get started and assist you in making your first investment in the stock market…
How to Pick a Stock?
Here are a few things you should know before you pick a stock:
- You should know the portfolio you would like to maintain and be determined to stick with it
- You should be wary of the daily happenings, trends, and events that drive the overall economy of the country along with the financials of companies you wish to invest
- You should use your knowledge of the market/economy aligned with their set goals to pick the right stocks.
Determine Your Goals
As mentioned above, each person has their own investment purpose and objective. While the overall purpose may be to make money, there are multiple routes to achieving this. For instance, some people may be interested in generating a stable income through investment; others may want capital appreciation, and others may still want to preserve their wealth.
The route to achieve each of these three goals is different. Let’s dig in a little deeper for a better understanding:
3 Types of Investors
Investors who are interested in generating stable income tend to buy (hold) stocks of companies that offer higher periodic dividends. Many such companies have solid foundations but low growth, like companies in the utility sectors. Other options for such investors may include investing in master limited partnerships, real estate investment trusts (REITs), or high-rated bonds (but that’s a discussion for another day).
Second, we have investors who are more tilted toward wealth preservation. Such investors inherently have a low tolerance for risky investments and prefer to invest in stable and consistent blue-chip stocks. These are proven and well-established companies with a track record of doing well in good and not-so-good times.
Lastly, we have aggressive investors looking for capital appreciation. These investors are after companies that are in early growth stages; thus, they have higher chances of capital appreciation (with higher risks, of course). But these investors are ready to take test waters with higher risks for higher chances of significant gains.
The Diversified Portfolio
Now, since you are a newbie, you don’t necessarily have to fit into one of these categories (even though fitting into one may help you in the long term). Nonetheless, you can always start with a diverse portfolio by going in with a combination of the strategies mentioned above.
In fact, a diversified portfolio is often the most secure and growth-oriented approach for new investors. Here, you can devote a small portion of your investment to high-growth stocks while keeping some solid blue-chip stocks as an antidote to any losses in high-risk stocks.
Keep Your Eyes Open
Apart from deciding on the investment portfolio you want to start with; you also need to keep your eyes (and ears) open to the market news and opinions. Skimming through the industry blogs and market financial news can be a good start. This will also help you to build a foundation of investment.
Besides all the technical insights and analytics, you must also keep an open mind and common sense to assess the market. For instance, look around for companies that may be producing consumer goods that are in high demand in emerging markets. Since there is a growing middle class in many emerging markets, such companies may be a relatively safe and high-growth option for investment.
Find Your Companies
Ok, now that you are done going through the insights and using some (common) sense in investment, there are three simple ways to find the best companies to start investing your first 5,000 Rupees.
– Check out the exchange-traded funds (ETFs), which deal in the industry of your interest (if you still don’t have an industry of interest, simply check out some of the most successful ETFs). There, you will find all the top holdings of the fund to get started
– Next, you can use “Screeners” to filter stocks against specific criteria, including growth stage, industry, etc. Screeners also offer other filters like market cap and dividend yield that will help you greatly in making an investment decision
– Lastly, you can get started with the good old method of skimming through the financial news, stock analysis articles, and other financial commentary for the industry you are targeting. Just make sure you read/hear all news and insights with a critical viewpoint and analyze both sides of the argument
The Next Step
Well, what are you waiting for?
Start your research process and shortlist some companies that trigger your interest most.
As a pro tip, remember saying “No” is a crucial part of stock picking. Never rush into the market; rather, make sure to test the waters before going all in!
Happy Investment!
