Stock market = Scary - A common notion believed by those who aren’t familiar with investing, and in some cases by those who are as well.
To invest is to gamble - Another popular notion typically believed by those who have no experience in the field.
If you believe/ or have believed in the above, then don’t worry! It is extremely common to be afraid of what we don’t know. But should you stay afraid knowing a little effort from your end will reap you great benefits?
Well, needless to say Dinero is always here to make your ‘little effort’ even more ‘little’ with our investment plan, packed with all the investment related information that you could possibly need to get started with your 1st investment. But it is always good to have an idea & understand where your investments are, no matter how brief the knowledge is!
Alright, let’s briefly talk about a few points which are enough to get started if you don’t want to go too deep (That’s what she said)
First and foremost, there's one thing that almost everyone confuses themselves with and is literally a game changer if you under what the difference is. Let’s talk about investing and trading and what do you need and can expect from both.
Putting your money into any instrument or security for the long run & with no intention of selling them anytime soon.
Aim: The ultimate aim is to build wealth over a period of time
Time: These investments are ideally held on over a long period – Over years or even decades
Advantage: Investing helps people take advantage of the increase in the share price over time & get perks like interest, dividends* etc. Do note that not all companies give their shareholders a dividend
Where to invest: You can invest in Shares or Funds. When it comes to shares, most people invest in a blue-chip company or highly reputed companies as there’s a lesser chance of them shutting down.
Mutual funds & ETFs and are usually the go-to for investing! The SIP (Systematic Investment Plan) model which automatically invests a said amount every month from an investor along with the magic of compounding has made fortunes for many.
(More on this coming soon..)
How much returns should you expect: This, by far, is the most common question asked by anyone who is planning to start investing. How much return should you expect? To understand this, you need to know the returns provided by different instruments. Another point to remember here is that risk & return always go hand-in-hand. Simple, the more risk you take, the better are the chances you’ll be highly rewarded!
Here are some approximate figures which can help you get started-
FD – 5-6% annual return (Low risk)
Mutual Funds – 15-20% annual return (Medium Risk)
Shares – 10 – 20%– annual returns (High risk - Highly subjective & depends on the company’s you invest in)
Buying & selling shares on an hourly or daily basis. In-depth knowledge of the subject, the industry, the company & its current and future projects are a must to get into trading.
Aim: The aim is to take advantage of the moving stock prices and to make returns (more than investing).
Time: The time of holding a stock can be a few minutes, hours or days.
Advantage: The dream is to buy the shares at lower prices and sell when they peak to make profits. While investors wait for the ‘market storm’ to pass, traders set sail in these high tides to make as much profits from the falling prices.
Where to invest: Trading usually takes place on shares. This is because they are traded on the stock market where there are a lot of buyers and sellers for a share, and hence easily traded. Which share to invest in is a whole different ballgame! As mentioned earlier, you’d need in-depth knowledge of the subject, the industry, the company and its current & future projects.
How much to expect: While investors get around 10-20% annual returns, traders might aim for 10% returns in a lesser timeframe. The reason? Risk and knowledge! You’d need way more information and knowledge to trade, and almost all the time there is an inevitable risk attached to it. So, a player contributing more time and effort will get more returns! It is only fair.
There is so much more to these 2 topics but let’s not go into such details and burden ourselves. This ideally should be enough to help make you the decision of “How long do I stay invested?” and “How much return should I expect from my investments?”. Understanding this has personally helped us in narrowing down where to invest, which is step 1 of the game!
Stay tuned for more easy, jargon-free and just enough information!
*Dividends – Profits made by a company. If this company decides to distribute its profits to its shareholders, the portion that shareholders receive is called Dividends.