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Investment advice for newbies


MechEng

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I am new to the playground of investment game, I have few questions, please answer if you can.

 

1.) Will investing in stocks be a very important skill in the future? Should everyone learn it as a common literacy?

 

2.) What is the right age to start with investing? Should I have a strong savings balance or an acceptable amount of salary to get started with investing?

 

3.) When should a person avoid investing and play safe by focusing on savings?

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From my reading over the past couple of years, long term investment (not trading) perspective:

 

Stock selection is a very good & specialized skill in the job market itself. MF/Hedge fund managers make good money when they have right skills and even better with suitable experience. For the commoner, it's pretty much a gamble unless one is going through company financial statements and annual reports and can explain reason for stock selection: e.g. current valuation, competitive advantage, undiscovered underlying assets etc. Having said that, there's many approaches on stock selection and they have some overlap & divergences in terms of methodology.

 

Investing (maybe more safer options initially) should begin from day 1 of earning, whatever u earn. Compound interest works best over really long periods of time. Index funds & periodic asset allocation between equity/debt  are a good starting point, as one learns more with time the circle of competence can be built and one can then invest in specific industries in the stock market.

 

Saving & investing both go together, a low risk liquid fund is also an investment. One should not invest in relatively higher risk assets like stocks when they have near term goals since fluctuations in stock price could affect their goals e.g. buying house/car.

Edited by Clarke
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https://static.nseindia.com/s3fs-public/2019-06/Basics_of_finmkts.pdf

 

Above to start with terminology and all. Rest, as @Clarke suggest. You need acumen.

I also believe investment is only way in a future of computer , bots, machines and AI. I only used to rely on Real Assets and Gold. Stocks market was always peanut investment to me. Got rid of most of stocks few years back, But now doing  me reasearch to see if I can put some serious money in various exchanges, specially US ones.

 

I know couple of guys who have given up their job since he entered in market. Looking back I remember that I allways made overall profit in Stock markets too. Thats motivation for me

Edited by mishra
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9 minutes ago, MechEng said:

@Clarke @Khota @mishra thanks.

Makes sense, I'll play safe unless I have a great net worth from my point of view. A financial planner's advice is needed to invest in more complex stocks.

Like everyone else said, starting early is key - even if it is small amounts.  My biggest regret is that I did not start until I was 30.  Even as a grad student, I earned enough stipend to put a bit aside every month into investments, but being a typical academic, didn't think to do that.  Wonder what the power of compounding would have done if I had started 6 years prior!  

 

Two things work for most people, especially someone like me who is very risk-averse and will not play with money:  (a) Early start (b) Dollar cost averaging - consistently invest a minimum amount and don't sweat downturns.  

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28 minutes ago, BacktoCricaddict said:

Like everyone else said, starting early is key - even if it is small amounts.  My biggest regret is that I did not start until I was 30.  Even as a grad student, I earned enough stipend to put a bit aside every month into investments, but being a typical academic, didn't think to do that.  Wonder what the power of compounding would have done if I had started 6 years prior!  

 

Two things work for most people, especially someone like me who is very risk-averse and will not play with money:  (a) Early start (b) Dollar cost averaging - consistently invest a minimum amount and don't sweat downturns.  

 

I agree, also a successful investor has a very good intuition on how stocks may behave in future. It is a specialized skill and not all investors are the same - much like test match batting, some like defense and some are comfortable with playing shots.

 

Besides, I guess investing into stocks with half knowledge can be quite dangerous, I've heard of cases where people went as far as putting their homes as a collateral in order to get huge returns, then the dotcom crash happened destroying many lives. So being risk-averse is sensible when it comes to investments, unless a person has good knowledge and a sense of intuition of how stocks behave.

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48 minutes ago, MechEng said:

@Clarke @Khota @mishra thanks.

Makes sense, I'll play safe unless I have a great net worth from my point of view. A financial planner's advice is needed to invest in more complex stocks.

 

Which country are you in ? If you're in a well regulated nation then the planner should have a fiduciary responsibility that they signed to ensure your interest over theirs, and then that's no guarantee of a good return. In India its jungle raj, most "advisers" care about their commission based earnings and they'll make you buy and sell stock/MFs frequently to keep the commissions going. A mere visit to a bank for whatever reason and those "relationship managers" are like hungry piranhas desperate to bite into your account by selling high expense ULIPs as an investment.

 

If you started earning recently, read up for a few months about basics like stock types, mutual funds, index funds, ETFs etc as well as interest rates & debt related financial instruments in your country. 

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2 minutes ago, Clarke said:

 

Which country are you in ? If you're in a well regulated nation then the planner should have a fiduciary responsibility that they signed to ensure your interest over theirs, and then that's no guarantee of a good return. In India its jungle raj, most "advisers" care about their commission based earnings and they'll make you buy and sell stock/MFs frequently to keep the commissions going. A mere visit to a bank for whatever reason and those "relationship managers" are like hungry piranhas desperate to bite into your account by selling high expense ULIPs as an investment.

 

If you started earning recently, read up for a few months about basics like stock types, mutual funds, index funds, ETFs etc as well as interest rates & debt related financial instruments in your country. 

 

I'm on visa in United States, my future is uncertain here, most likely will be returning to India.

 

I wont be investing now until I'm more settled, but will gradually first learn the basics.

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Stock investing with half cooked knowledge can be very risky. I have lost lots of money playing with FTSE stocks. There are 2 essence of stock investing - knowledge & timing. You must know the company well and the product it supports. Also, you should know when to buy & sell a share. The cheaper you buy...the better for you. You need to know how to calculate P/E ratio to know if a stock is cheap. You must also know when its the right time to sell a stock. I got greedy and hold a stock even with significant profit thinking it will go up more but they shut the damn company.

 

For any new investor, its best to start with exchange traded funds. Buy 4 funds tracking global indexes - NASDAQ, FTSE, Asia & emerging markets and put money (say 100$ each) per month.

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Stocks are not the only way to earn money. It won't matter if one owns stock or not. One often comes across people who have no idea about stock or mutual funds but they are more rich. It totally depends on earnings and how much one saves and invests from earnings. Financial literacy helps so having knowledge about market will add up to knowledge and get more out of your investments.

 

Initial few years are a cycle of invest, make some mistakes, learn from mistakes. It does takes some years to get a good knowledge about how markets operate.So it is better to invest early. Savings are the backbone. Nothing can compensate that. One can opt for a good mutual fund scheme through SIP as soon as first salary is received. Beware of bad schemes.

 

Saving and investing are both important.

 

Don't buy overvalued stocks. To play it safe spread the money into various assets like Property, Savings account, Gold, LIC, PPF, Kisan Vikas Patra, Recurring deposit, equity and mutual funds. 

 

The key to investment is to diversify and allocate the money properly. 


 

Edited by Straight Drive
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19 hours ago, MechEng said:

@Clarke @Khota @mishra thanks.

Makes sense, I'll play safe unless I have a great net worth from my point of view. A financial planner's advice is needed to invest in more complex stocks.

Just go through that pdf link. In long run both Gold and property outperform inflation. (Gold means Gold buisicts, No jewellery. Be man, put your foot down dont listen to women in you life on this) I call fixed deposits and funds as lazy peoples investments. Stocks/currency/Futures Financial market is for "Regular Income"  but has risk

Edited by mishra
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@MechEng

 

1. There is no skill involved in passive investing. Don’t fall into the price prediction trap. Simply take a portion of your salary and invest into assets other than cash every month

 

2. Clear debt, create emergency savings and then start investing

 

3. If step 2 done never avoid investing. You’ll lose out on compounding and to inflation 

 

 

I'm on visa in United States, my future is uncertain here, most likely will be returning to India.

 

There are legit ways to avoid the country of birth problem if you research well.

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19 minutes ago, MechEng said:

Really good answers all @Straight Drive @velu @bhakum20 @Austin 3:!6 @mishra @Khota @randomGuy @BacktoCricaddict @Clarke.

Resonates well with advices I've received from others I've asked. Thanks all!!

 

Good luck! Make a fortune and then we can all go out for a dinner or something.

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