“If you don’t find a way to make money while you sleep you will work until you die.”
– WARREN BUFFET
This decade is all about making money each second if you wish to beat the inflation in the future which is not going to happen if you only work 9-5 or have huge savings in your bank account which gives you a maximum 4-6% interest or having an FD, gold jewelry, big plots, and flats. So what good options are you left with which would give you good returns in the future, I guess the answer is quite clear. Markets are something that you can never fully understand until you have been a part of it.
How to invest in stocks?
You might be tired of following those TV experts but couldn’t get any return out of their advice. At last, you have to take your call you can decide where to invest and how much to invest if you are choosing DIY, so here are some steps which you can follow to invest.
- Screen and Filter stocks using Financials
You can check all these data through apps such as MONEYCONTROL or EQUITYMASTER
- Select the companies whose business you understand
I hope you don’t even buy a toothbrush without knowing fully about it, in the same way, you must
learn about the company in which you wish to invest will help you understand the company’s business and will provide answers to three key questions
- How is the company’s business?
- Do you understand the product/service?
- Do you understand how the business works and makes money?
It is important that you invest in companies that you understand and well aware of especially in the initial stage while you are learning to invest in stocks. That way you might save yourself from losing money.
- Look for companies with sustainable Moat i.e., competitive advantage
you make your identity irreplaceable in your firm through your unique skills and personality. Similarly, a moat is known as the competitive advantage that one company has over the other within the same industry such as choosing between ASIAN PAINT and BERGER PAINT. The wider the moat, the larger the competitive advantage to the company with more sustainability. This implies it would be very difficult for the competitors to displace that company and capture its market share, that’s a stock you would want to select and invest in which may be ASIAN PAINT rather than BERGER PAINT because of its innovative strategies of capturing the market.
You can identify moat by brand power, intellectual property rights, and patents, network effects, govt. regulations controlling barriers to entry, and many more.
- Choose companies with Low Debt Levels
Debt to Equity Ratio and Current Ratio, these two ratios are indicators of how heavily a company is dependent on borrowed capital i.e., debt to fund its growth and the company’s capability to meet its short-term capital obligations. The company reducing debt will earn more profits which is a positive sign for the financial health of the company, whereas companies having too much long-term debt will face difficulty to pay off the debts because most of the capital is going to interest payments which makes it difficult to use the money for other purposes. This causes a risk of sustainability and may lead to the company’s bankruptcy.
- You can use financial ratios like RoE and RoCE to identify the stocks
“RoE is the percentage expression of a company’s net income as it is returned as a value to shareholders. This formula allows investors as an alternative measure of the company’s profitability and calculates the efficiency with which a company generates profit using the funds that shareholders have invested. RoCE is the primary measure of how efficiently a company utilizes all available capital to generate additional profits.” –INVESTOPEDIA
These financial ratios help to understand whether the company is profitable in terms of investments and how efficiently it utilizes its resources. A company with high RoE and RoCE has great potential for future growth in the value of the company such as AVANTI FEEDS which has raised to 7000% over 5 years.
- Choose a company that has Honest, Transparent, and Competent Management
You would not want to invest in a company that doesn’t have good top management if the top management is corrupt such as VIJAY MALLYA or RAMALINGA RAJU, RANA KAPOOR. A recent example is the condition of YES BANK currently which used to be among good companies to invest in.
There are a few ways to check the company’s management:
- Search for any fraud track record of the company
- Check annual reports closely i.e., manipulations
- Promoter shareholding
- The Right Price to Buy the Stock (buy low, sell high)
“Price is what you pay, the value is what you get”-WARREN BUFFET
There is no use of buying a stock when it is overpriced in terms of its intrinsic value. When the stock is available at a deep discount to its intrinsic value in the market then it is the right time to buy.
The rule is to buy the stock very cheap which increases the chances of generating great returns in the future.
How to invest in bonds?
When you wish to invest in a less risky investment then the simplest investment vehicle is government bonds because government bonds are issued by the central government in India and these bonds are regulated and managed by the Federal Reserve Bank of India (RBI).
Government bonds are risk-free due to the security of the principal amount, and the certainty of the promised return. If you wish to invest for the long term, but want to keep it risk-free, Government bonds are the best option.
PROCESS OF PURCHASE
FOR SMALL INVESTORS
Small investors can buy government bonds in India using a mobile app or a web-based app i.e., NSEgoBID of National Stock Exchange (NSE). Either of those two apps are often wont to buy the following:
- Long-dated government bonds: holding time: 5 to 40 years.
- Treasury bills (T-bills): holding time less than 1 year.
Don’t forget to complete the process of registration before buying the government bonds using NSEgoBID.
Tax-free bonds are the best suitable for small investors because the interest income generated from such government bonds are free of income tax. This becomes especially lucrative for those people who are in the maximum tax bracket (30%+).
How to invest in real estate?
“Real estate investing involves the acquisition, ownership, management, rental, and/or sale of land for profit. Improvement of realty property as a part of a true estate investment strategy is usually considered to be a sub-specialty of land investing called land development. A real estate is an asset form with limited liquidity relative to other investments, it’s also capital intensive (although capital could also be gained through mortgage leverage) and is very cash flow dependent. If these factors aren’t well understood and managed by the investor, land becomes a risky investment.”-WIKIPEDIA
Best ways to invest in real estate
Buy REITs (real estate investment trusts) REITs:
REITs allow you to invest in real estate indirectly without actually owning the real estate property. Often compared to mutual funds, they’re companies that own commercial lands like office buildings, retail spaces, apartments, and hotels. REITs tend to pay high dividends, which makes them a standard investment in retirement. Investors who don’t require regular income can automatically reinvest those dividends to grow their investment further.
REITs are a good investment, but can also be varied and complex. Some trade on an exchange sort of a stock; others aren’t publicly traded. The type of REIT you purchase can be a big factor in the amount of risk you’re taking on, as non-traded REITs aren’t easily sold and might be hard to value. New investors should generally stick to publicly-traded REITs, which you can purchase through brokerage firms.
How to invest in cryptocurrency?
The value of Bitcoin depends on investors’ faith, and its integration into financial markets, public interest in using it, and its performance compared to other cryptocurrencies. It still involves some technical and security issues that investors should be aware of before they begin. If you want to trade bitcoin, you will require a place to store them such as a digital wallet. You need to buy bitcoin which is usually by connecting a wallet to a bank account, credit card, or debit card.
Investors can join the exchange, online marketplace to trade traditional currencies, bitcoin, and other cryptocurrencies. Various exchanges are as follows:
- Best for Beginners: Coinbase
- Best for On the Go: Square Cash
- Best for Bitcoin on a Budget: Robinhood
- Best for Big Bets: Coinbase Pro(GDAX)
- Best for Buying in Cash: Peer-to-Peer
How to invest in retirement accounts?
It is always knowing to start planning your old-age pension at the earliest. Here are a few crucial points to keep in mind while choosing a retirement plan.
- Return on investment should be greater than the rate of inflation
- Target adequate pension income
- Do not ignore complementary investment benefits
- Liquidity is important post-retirement
- Flexibility in investment
Retirement portfolio with a mix of various products. Here are few investment options for the retired to supply for his or her monthly household expenses.
- Senior Citizens’ Saving Scheme (SCSS)
- Post Office Monthly Income Scheme (POMIS) Account
- Bank fixed deposits (FDs)
- Mutual funds (MFs)
- Tax-free bonds
- Immediate annuities
How to invest in ETFs and mutual funds?
Passively managed funds are best represented through ETFs. Through ETFs, you invest in an underlying asset, portfolio of assets, and trade over stock exchanges. The underlying may be an index, securities, or commodities. ETFs are often easily bought/sold anytime during market hours like all other stock on the exchange. The trading price is generally close to the actual net asset value (NAV) of the fund. Investments in ETFs, however, require investors to carry share trading and Demat accounts.
Points to remember if you are a beginner:
INDICATIVE NAV: a bit like an open-end fund, ETFs have a net asset value (NAV), the worth of every unit at the top of the day. But as ETFs trade real-time, funds provide an indicative NAV, or iNAV, which is that the real-time NAV of an ETF. iNAV may be different from the market price.
ADVANTAGE INSTITUTIONS: “When there’s more demand than the units on sale, the market value could also be 25-50 basis points quite the iNAV. If there are more sellers than buyers, the worth could also be 25-50 basis points less. The arbitrage opportunity could also be there as long as the difference between the market value and therefore the iNAV is above 50-75 basis points. If not, no party will make money thanks to brokerage, securities transaction tax, and inventory-carrying costs,” says RajnishRastogi, senior fund manager, and co-head, equities, MotilalOswal AMC.
LIQUIDITY ISSUES: “Recently, we found that an ETF that our client wanted to shop for wasn’t available within the market within the required quantity. He had to pay a 3 percent premium to the market value to accumulate it,” says a financial planner
“For three of the ETFs we’ve launched, just in case the market value is at a reduction of quite 3 percent over a period, we open the ETF for direct redemption by retail investors in multiples of 1 unit. As a result, during such time, the ETF becomes an open-ended fund for redemption by retail investors. This protects retail investors,” says Rastogi of Motilal AMC. This means if the market value of an ETF is at a reduction to its iNAV by over 3 percent, you’ll directly contact the AMC for redemption rather than going to the market-maker.
Steps to invest in mutual funds:
- Understand your risk capacity and risk tolerance. This process of identifying the quantity of risk you’re capable of taking is mentioned as risk profiling.
- The next step is asset allocation. Once you identify your risk profile, you ought to look to divide your money between various asset classes. Ideally, your asset allocation should have a mixture of both equity and debt instruments so balance out the risks.
- Then you should identify the mutual fund scheme which invests in each asset class. You can compare mutual funds schemes according to the investment objective and past performance.
- Make the application online or offline.
- Diversification of your investments is important to ensure that you get the best out of your investment.
How to invest in CDs
Certificates of deposit (CDs) make financial sense for people of all ages who need a low-risk investment to park cash they don’t decide to use immediately. Maybe you would like to use your cash to shop for a car or make a deposit on a house pretty soon.
Tips to invest in CDs:
- You can earn more in a long-term CD, but if you choose to withdraw before the term then penalties can be severe.
- Compare CD rates at Bankrate. Also, see if you’d be better off with a high-yield online savings account.
- Staggering your investments via a tactic called laddering can give you periodic access to the money within your CDs.
How to invest in insurance policies?
The importance of investing in life assurance can’t be stressed enough. Life insurance is meant to supply financial safeguards against the death of the policyholder and also works as an honest investment plan, which helps you meet several life goals successively. The life assurance sector in India has been witnessing steady growth as more and more people are awakening to the need of investing in life assurance plans.
- Whether or not life insurance is a good investment for you depends on your finances as well as the length you’ll need coverage.
- The investment portion of permanent life insurance grows tax-free. You can also borrow against the cash value to buy a house or pay for your children’s college costs, tax-free.
- Alternatively, with term life insurance, all of your payments are put toward the death benefit for your beneficiaries, with no cash value and, therefore, no investment component; this means small premiums in exchange for a large death benefit.
Stock market: https://investorjunkie.com/investing/how-to-get-into-stocks/
Real estate: https://www.investopedia.com/investing/simple-ways-invest-real-estate/
retirement accounts: https://economictimes.indiatimes.com/wealth/invest/5-investment-options-for-the-retired/articleshow/54222117.cms?from=mdr
Mutual funds: https://groww.in/beginners-guide-mutual-funds/
Insurance policies: https://www.policybazaar.com/life-insurance/investment-plans/