Beginner’s guide to successful investing
Welcome to HSBC Mutual Fund Beginner’s guide to successful investing. This guide is written and published by HSBC Mutual Fund, but it is inspired by all of us from the animal kingdom. Are you wondering why? Ah, now that’s the best question we’ve heard in a long time. You see, investing may seem complicated, but it really is as simple as our everyday lives! Don’t believe us? Read on. You’ll never believe how easy it can be to make an investor of the saver in you. And, enjoy!
1. Start investing early.
Start early and over time your savings could grow into a sizeable sum.
When you start saving early, your money has more time to grow. Moreover, you benefit from the power of compounding - your investment earns income and that income earns more income. So, the sooner you start, the better your chance at building wealth in the long-term.
2. Keep some money aside for emergencies.
Ideally about three to six months of expenses is considered a good amount.
You don’t really have to keep the cash lying idle - just make sure you can withdraw the amount when you need to - without penalties.
Why you may need your money at short notice
- An emergency such as hospitalisation
- An unexpected expense such as for repairing your car
- To manage expenses during a job shift or in case of a job loss
3. Think carefully about how long you will be investing for
Categorise your goals in terms of time frame.
A simple, yet effective way would be to divide your goals into short, medium and long-term. Look at the stock market only if you are prepared to put your money away for five or ten years, or perhaps even longer. For example, to meet long-term goals such as retirement or children’s education or marriage.
If you are likely to need your money any sooner, keep it in an investment in which the chance of a loss in capital is lesser.
4. Remember that inflation will eat into your savings
Equity-oriented investments are more suited to generate better post-inflation returns.
Returns on risk-free cash investments may sound comforting, but when you consider the impact of inflation you may not be so impressed. For long-term growth you need to make your money work harder.
Inflation – the ticking time bomb At 7 per cent inflation, what costs `1,00,000 today will cost over `3,86,000 after 20 years!
5. Ask yourself how much risk you can take
Be realistic about your appetite for risk.
The potential of high returns may not be of much use if you are going to lose sleep over the risk associated with your investment. Also consider other aspects such as your financial obligations and life stage to gauge your overall risk taking ability.
6. Spread your money across a range of investments
You will be less likely to lose out if one type of investment does badly.
Depending on your goals, life-stage and attitude to risk, you will probably want to spread your money across different types of investments – equities, bonds and cash. You may also want to diversify within each of these categories. An equity fund, for example, will invest your money in a variety of companies but you may want to ensure you have a range of industries or sectors too.
7. Choose your funds carefully
Select investments based on your personal circumstances and goals.
Ideally equity funds are most suited for long-term goals – five or ten years at least. For goals that are medium to short-term in nature it’s best to opt for lower-risk options.
Don’t opt for the flavour of the season, unless you are sure it will be right for you in the future. Don’t assume all funds investing in Indian equities are the same – look at what a fund invests in and check if you are comfortable with its investment style and objectives.
8. Invest regularly
Every little bit adds up.
Investing regularly is easy if you treat your investment as part of your monthly budget. A Systematic Investment Plan (SIP) is a great way to build a sizeable sum. Moreover, investing regularly also allows you to capitalise on a phenomenon called “Rupee cost averaging”.
The power of rupee cost averaging
The table compares the returns achieved by a lump-sum investor and someone who saves the same amount every month for six months. The regular saver finishes with an investment that is worth more than the lump-sum investor’s after six months – even though the starting price, finishing price and average price are exactly the same.
9. Review your investments
Review your investments regularly so they match your long-term goals.
There is nothing constant in life. Situations keep changing. A portfolio that is right for you at one point in your life may not be quite so suitable a few years later. Your investments need to adapt to changes in your circumstances, such as getting married, having children or starting a business. It’s also a good idea to check that each of the funds in your portfolio is living up to your expectations.
Getting the right mix
For the greatest long-term growth potential you could invest all your money in equities. But this could be a high-risk strategy as the markets could dip just before you need the money. You may need to think about making changes to your portfolio over time. You could aim for strong growth in the early years, and then, lock in gains you may have made and move into lower-risk investments. As you get closer to needing your money, bonds and cash investments could be your emphasis.
10. Stay invested for the long-term
Remember that time not timing is the key to successful investing.
It is very tempting to invest when the markets are high and everyone else is investing and to redeem when the markets are falling. During volatile periods, markets can swing in both directions; it is better to remain calm and take a long-term view, so you have time to ride out any ups and downs.
An Investor Education & Awareness Initiative by HSBC Mutual Fund
Visit https://grp.hsbc/KYC w.r.t. one-time Know Your Customer (KYC) process, complaints redressal process including SEBI SCORES (https://www.scores.gov.in). Investors should only deal with Registered Mutual Funds, to be verified on SEBI website under Intermediaries/Market Infrastructure Institutions (https://www.sebi.gov.in/intermediaries.html). Investors may refer to the section on ‘Investor Education’ on the website of HSBC Mutual Fund for the details on all ‘Investor Education and Awareness Initiatives’ undertaken by HSBC Mutual Fund.
This document is intended only for distribution in Indian jurisdiction. Neither this document nor the units of HSBC Mutual Fund have been registered under Securities law/Regulations in any foreign jurisdiction. The distribution of this document in certain jurisdictions may be unlawful or restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions. If any person chooses to access this document from a jurisdiction other than India, then such person do so at his/her own risk and HSBC and its group companies will not be liable for any breach of local law or regulation that such person commits as a result of doing so.
Mutual fund investments are subject to market risks, read all scheme related documents carefully.