How to invest your first one lakh?
Investment is something which is read by everyone, only few of them able to understand it, and very limited users actually invest and achieve their investment goals. If you are interested in investing, why not start from small.
Let’s assume you’ve got one lakh in hand and wanted to invest in, but don’t know where to start.
One lakh rupees may not buy you a significant stake in a business, but it can go a long way in building your investment journey, and investment is a long journey.
Before you think of investing anything, consider this as locked fund, even though you can withdraw it anytime.
I’m saying this because there are some individuals who expect return in very short time, checks their portfolio value all the time, and focuses on the final value only. To be honest, investment is not for them.
Now, come to the main topic, I got my first one lakh. I want to invest, but don’t know where to start.
So, in this article, I’ll help you to start your investment journey with all the details.
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When you are beginning your investment journey, it would help in keeping a diversified portfolio and aim for a long term investing horizon. Unless you don’t know everything about investment, a concentrated portfolio is, No-No.
A concentrated portfolio at the beginning of your investing journey is a double-edge sword. If it succeeds you’ll succeed, but if it fails, all the funds will be on risk. That’s why a diversified portfolio is necessary.
Most financial advisors suggest that for young investors, a large part of their portfolio should be allocated towards equity. Compared to other asset classes, equity is likely to give better returns if we take historical return as a reference. By time, you can shift your allocations to less risky funds.
First, understand the concept of asset allocation.
Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor’s risk profile, goals, and investment time frame.
If you are unable to find how much risk you should take, then minus your current age from one hundred.
Suppose your age is 30; so, 100-30=70.
This says you should take at least 70% of the assets allocated in the risk assets, where chances are high that you’ll make the most with time horizon. By age, you can balance the risks accordingly.
Here the rest 30% investment should be made in debentures, fixed deposits, sovereign gold bonds, etc.
Now talk about that 70% where it should go.
Consider that 70% as 100% of available fund resources.
Now here is a basic framework, where and how much to go.
1. Index fund (20%).
An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a financial market index, such as the Sensex or the Nifty. There are three major advantage of investing in index fund such as broad market exposure, zero risk of fund managers, and less cost of investment.
If you have not enough time to research the market, index fund is an easy ready-made option for you. Investment in an index fund is like investing in large numbers of stocks, so it is less risky than investing in a single stock.
2. Blue chips (20%).
Blue chip companies are those large behemoths who have seen multiple business cycles in heir long history of operation. These are typically large, well-established and financially sound companies that have operated for many years and that have dependable earnings, often paying dividends to investors.
Such companies don’t see much growth, but they are very much stable, overall it saves your portfolio from going down even in the worst cases where market is not performing well.
3. Dividend yield (20%).
Stocks that have a high dividend yield provide stable income generation for the portfolio in the form of dividends.
Dividend Yield = Annual Dividends Per Share / Price Per Share
The best thing is that, you’ll earn a regular income over the stock appreciation.
4. Growth (20%).
Growth stocks are that offer the highest compounded annual returns. The risk ratio is always high in growth stocks, so a good analysis is always needed before you invest in such companies.
5. Value (20%).
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their face or intrinsic value. It happens when market underestimates a company. But that doesn’t mean all such stocks are valuable. The fact is, only one or two companies in hundreds are likely to show a growth in the future.
Here, the risk factor is always low because you’ll be dealing in inexpensive stocks anyway.
Now you have a well diversified portfolio that will surely give you handsome results.