When you start becoming conscious about money, there are a lot of questions that emerge & not all of them get answered in a way which is practical as well as simple to understand. “How to start investing” is one of them.
At fintox, we plan to uncover all such questions through a series of stories with immense practical applications as well as leanings which you can implement on a daily basis.
Starting with the first story, we look into how you can start investing?
Where to start with investments?
We have been running a live survey trying to understand why people find it difficult to invest in financial assets. Here is the story that comes up –
(Thousands of people across India have provided their responses. This survey is still live, you may participate here – Google Form Survey)
Two major reasons why most individuals find it difficult to start with investing are –
- Dont know where to start with investments
- Lack of proper courses or guidance
The next few reasons are as follows –
- Lack of skill
- Lack of patience
- Fear of loss
There are numerous other reasons as per the responses provided in the survey but, broadly these can be summarized as follows.
- Limited awareness
- Lack of knowledge
- Missing attitude
- Lack of capital
- Lack of ecosystem
You may relate to few of the reasons cited above but now let us start solving them one by one in this storybook on investing.
Start with – Knowing the options for investing
The fundamental fact is we invest so that our wealth grows. Investing money, time & effort in things, that let your money grow are called assets.
These assets for simplicity can be grouped together under multiple asset classes. We have 5 major asset classes as follows –
Each asset class has a limited number of assets you choose to start with investing.
For example, asset class cash refers to money directly or any format which can be quickly converted into money. So cash, savings account, digital wallets and liquid funds are different type of assets within the cash asset class.
Similarly, here is a list of most assets which are investment option for you within each asset class –
| Cash | Debt | Equity | Real Estate | Commodity |
| Hard Cash | Fixed Deposit/ Recurring Deposit | Stocks | Flats/ Bungalow | Metals – Gold, Silver, Copper |
| Savings Account | Debt Mutual Funds | Equity Mutual Funds | Plots | Crude Oil |
| Digital Wallets | EPF, PPF, NSC, Post Office Savings | Index Funds or ETFs | REITS | Currency |
| Liquid Funds | Bonds/ Debentures | Startup Funding | Commercial Property | Crops – Wheat, Corn etc. |
Which asset class to start investing with?
Now that we figured an exhaustive list of options, we need to embark on journey to learn a few quick facts about these assets keeping our objective in mind. And the objective is to improve the financial situation or keep increasing/building wealth.
The simplest to understand the investing options is to look at the chart below. It shows you the final value in the year 2020 of Rs 100 invested in 1998 in different asset classes.
Suppose you kept Rs 100 as cash hidden somewhere carefully, its present value would be equivalent to Rs 27. Now this is because of inflation, the prices of all things around us have increased, so the purchasing power of Rs 100 has gone down. For example, the price of lets say Amul Butter which used to cost Rs 40 around 2000s in now Rs 140+ in 2020.
And so the basic tenet is, we should at-least invest so that inflation does not erode the purchasing power of our money.
Suppose the inflation is around 5% (that means prices of things around us are increasing by 5% on average) so if kept money in a savings account which gives 4% annual return, we are simple eroding our wealth with negative real return.
Infact, by holding cash at your home, you are actually going nowhere in building your wealth.
So the question is how much amount should be held in cash asset class? This will get answered in our storied ahead.
What about other investment asset classes?
As can be seen from the chart above, there is a potential to beat inflation in up-to a different level in different classes.
For example, if you invested Rs 100 in 1998 in the Nifty index fund, you would have got Rs 1471 in 2020. Similarly for Rs 100 in gold, you would have got Rs 993 in 2020. The final values for Fixed Deposits & Real Estate would have been close to Rs 544 & Rs 443 respectively.
However there are a few factors which come in your way to start investing and realize the values mentioned above –
- Knowing the asset class
- Gaining the skill to invest
- Creating the Capital
- Enjoying the time when your money works for you
Debt is the asset class which any one can start with minimal effort. If you have a bank account, you can open a fixed deposit, recurring deposit etc. on a click of a button. As the next stage, you should then graduate towards savings tax and maximizing your returns with this investment asset class.
Equity and commodity are generally perceived to be quite risky, difficult to master but they have the highest potential for returns. We simplify this by changing the perspective towards these asset classes with new storyboards coming soon.
Real Estate requires high initial capital and it has been a preferred investment option in India. However, most of us end up confusing consumption & investment. At fintox, we currently stick with financial assets and in future may create way to simplify investing in real estate.
For now, the objective is, how can you use small amounts of money to generate huge amount of wealth successfully.
Concluding remarks
For starting to invest, you should should first know the options to invest. Choose an option which is the simplest to begin with because that results in getting conscious about money. It brings in discipline, fun & self confidence that helps in unraveling all assets for building your wealth portfolio.
So stay tuned as we take you to our next part of the story and start exploring how can you leverage different asset classes for starting with investing.
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