9 Valuable Tips To Become A Pro In Investing

The Finance ecosystem is filled with noises about the next best thing that will make you a ton of money in a very short period of time. Investing can be complex & any investor can get thrown off by the never-ending concerns about economic activity, earnings, interest rates, politics & so on that surround investment markets frequently. But who doesn’t want to be a pro-investor with a perfect portfolio & amazing returns? 

Everyone right!

To break down the complexity of investing here are some valuable tips on how you can become a pro-investor.

1. Budgeting

Budgeting is an age-old process & is used by all from our mothers making household budgets to the Government making budgets for the whole country. Budgeting is the first & foremost step as you should know how you will allocate your income. To make financial decisions ahead of your time you should budget your income in at least 3 parts – Spend, Save & Invest. A simple budgeting rule that you can follow is the 50/30/20 rule, where 50% of your income is spent on needs, 30% on wants & 20% on savings. 

2. Planning – Setting of goals

Financial planning has been deemed the foundation of investment success. You should always plan before investing. It enables you to keep track of your income, expenses, and investments, allowing you to manage your finances and reach your objectives. Planning can start with you setting your goals. This is called goal based investing. Goals can be anything from buying a house, planning your retirement to a world tour and if not a specific goal then maximisation of wealth could be set as a target. 

3. Know your risk appetite

Everyone wants quick returns but do you have the required risk appetite is an important question. Natural highs and lows of stock markets often impact our emotions and eventually our ability to make rational decisions. Thus, it is essential to know your risk tolerance before you begin investing. If you have a low-risk appetite, you may want to avoid larger exposure to riskier investing channels such as direct equities, derivatives, small-cap equity funds, and should instead invest in mutual funds, ETFs, index funds as well as debt instruments.

4. Long-term systematic investments.

Investing in the short term can be risky as markets can be very volatile, whereas investing for the long term gives you the opportunity to ride out the highs & lows of the market. 

Systematic Investment Plans are always a thumbs up. Investing in a disciplined fashion through an SIP mode keeps us from bothering with timing the market with lump sums.   

5. Zero debt policy

Leveraged investing or borrowing money to invest is highly risky and one should never indulge in it. It is always advisable to keep a portion of your savings to invest. Moreover, credit cards are in trend right now, people who use them wisely can get a lot of rewards like discounts and cashback, an interest-free period of 45 to 55 days, a good credit score, etc. But reckless use of credit cards can also ruin your credit history forever. You should use credit card wisely and try and meet expenses from you saving and spend on things you can afford. You can plan ahead of your expenses & opt for goal-based investing, which helps you save for your long-term and near term goals systematically.  

6. Diversify

The adage “don’t put all your eggs in one basket” warns against putting all your investments in one basket since you could lose everything. Diversification is a strategy that allocates investments over a variety of financial assets. Diversification helps an investor with reducing the risk in their portfolio without affecting the returns by a large degree. Different asset classes react differently to market movements. During the pandemic, the pharmaceuticals sector suffered moderately, whereas tourism and hospitality were severely affected. Gold prices increased while equity markets went down in the initial months of pandemic. Thus, investing in a combination of assets classes or across sectors can help investors offset losses in one particular asset or sector.

7. Have an Emergency fund

Life is unpredictable & emergencies arise when you least expect them. Hence no matter how much you are investing you should always keep an emergency fund for “Just in case” events.

8. Don’t forget about taxes

One should always be mindful of taxes when investing. Investors can reduce their taxable income by making an investment of Rs 1.5 lakh under Sec 80C and 80D. They can also avoid paying short term capital gains by investing for more than a year. 

9. Seek an advisor

It is always advisable to consult an expert before following all these tips as it may sometimes become a daunting exercise for a common investor to do all of this on his own. You must however use caution while selecting a financial advisor. A good financial advisor can help consumers create a healthy relationship with their money and achieve their financial objectives in the most effective way possible. A bad advisor, on the other hand, may cause the client to lose faith in the financial system. It’s a good idea to get help from SEBI–registered financial advisors who are qualified and offer unbiased investment advice.

Disclaimer: This write up is solely for educational purposes.

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