Ways to invest
There is no correct answer on where to start investing. While deciding where to start investing, think 🤔 about: your financial goals, your risk appetite and how much you can invest.
Liquidity
Ugh, another financial term. Think of liquidity as a term that measures how easily your investment can be converted into cash. 💵
If your money is stuck in an investment that you cannot “instantly” access and convert into cash, then it is considered illiquid. Your liquidity needs will factor into what types of investments you should do.
Cash sitting in your wallet 👛 is most liquid, but it’s not growing over time! Yes, you obviously need liquidity for your day to day expenses - but some amount of your money can be in an illiquid investment.
The key 🗝️ is to balance out both in order to meet your short term expenses and long term growth.
Investments Categorized by Risk
Of course - before determining which investment to start with, you have to understand the risk implications of the investment!
Broadly, investments are either:
Debt/fixed income: where you are lending money to an organization and receive interest on the loan you are giving.
Equity: where you are purchasing a piece of ownership in a company and you earn returns when that company grows in value.
Debt investments carry lower risk (and lower return), while equity investments carry higher risk (and higher return).
Mutual Funds
Mutual Funds are a great way to start because they have built-in diversification (someone is paid to spread out your investments to diversify risk!). They can be easily invested into and withdrawn from.
Mutual funds can be of equity or fixed income (debt) in nature, which means they are not always equal to investing in stocks.
Stocks
Buying a stock is buying a small ownership in a company that makes its shares available on a stock exchange. They are good investments for the long term, but are not recommended for newbie investors since they are considered risky investments.
Bonds
Bonds are a type of fixed income or debt investment. When you buy a bond, you are lending money to an organization, (government or corporate) that issued that bond. They owe money to you, the lender, when you invest in bonds.
They are considered to be of moderate risk but with higher returns and less liquidity than Fixed Deposits.
Real Estate
We all dream of our dream-house, right? Real estate is an investment for the long term. It is highly illiquid (you can convert a house to cash instantaneously - it takes a while!) and off late, haven’t been giving good returns in India.
Gold
Gold is India’s go-to asset. We all love the shiny, highly valued, highly safe asset. However, it should be considered as an alternative currency and not an investment. Gold prices has not appreciated in nearly eight years.
Other Ways
Private stock is one (e.g. investing in a startup that you think will grow huge over the next several years), and several other alternative investments.
There are more ways to invest! Our suggestion is to stick to the basics since these types of investments require a ton of research and knowledge.
