The interns of the “Do More With Your Time” – A KredX Internship initiative have been helping us run the show through these lockdown days. Here’s an in-depth article by our 17-year-old intern, Smarth Kaul, about the 3 key things to keep in mind when investing.
What Is Investing?
Investing is a way to increase your wealth by putting your money into various investment opportunities like real estate, financial products, venture capital etc. If we talk about financial products, these are varied like bank accounts, money market accounts, stocks, bonds, mutual funds, precious metals etc. Anything that potentially increases in value can be an investment.
Now that we know what investing really is, let us look at the key things to remember before we invest in financial products.
1. Risk Assessment
All investments involve some degree of risk. In finance, risk refers to the degree of uncertainty and/or potential financial loss inherent in an investment decision. In general, as investment risks rise, investors seek higher returns to compensate themselves for taking such risks. When comparing two potential investments, it is wise to compare like for like to determine which investment holds the most risk. Diversifying your investments also manages risk. So one may scatter across various risk categories. Also, risk assessment has to be extended to cover the ratings and financial strength of the companies where you are investing.
2. Long-Term And Short-Term Money
Always allocate some percentage of the whole to long-term investments and the rest to short-term investments. Short-term investments are usually high risk and high return. On the other hand, long-term investments are low risk and low return investments, also known as safe investments. Long-term and short-term requirements of individuals also guide them about where to put in money. Moreover, each one should set a threshold or what is known as the tipping point when it comes to investments. This tipping point will represent the amount of money you are comfortable losing.
2. Hidden Costs And Penalties
Charges on delayed payments and early withdrawals are often overlooked. Be wary of these as well as the fee structures. The fine print always contains various terms and conditions as well as charges which we generally overlook and which becomes a pain at the time of withdrawal or early redemption.
I hope these pointers make you feel more confident about investing in the future.