Stock portfolio and market analysis, financial planning calculators and investment options – Are these terms confusing you? If you are seeking to understand the fundamentals of investment and the need for planning out investments, look no further. Our guide to investment fundamentals takes you through the basic principles of building an investment portfolio. If you haven't started investing yet, it's never too late to start.
Investment is a hedge against insecurities of the future – from inflation and increased funds needs or better wealth management. The power of compounding is what makes investment attractive. Your future wealth is decided largely by the prudent investment plans you undertake now. Investment always comes with an element of risk. It is for you to weigh the level of risk with possible rewards. Understanding risk is the cornerstone of investment fundamentals. Take the level of risk that you are comfortable with.
Diversification is the key to good investment management. Spreading your assets and investments across various groups spreads the risk. Short-term cash deposits or property investment or stocks and shares – you can diversify your investments based on your comfort level. Investments such as bank deposits earn a fixed interest. Stocks and mutual funds promise more growth potential. When they do well, you stand to gain because you earn money on the money your investment makes. Investment in property can bring you handsome returns but over a period of time. Diversifying investments ensures that you don't lose everything if a particular investment doesn't work well.
Investing is about making your money work for you. It is about making priorities for your money. The power of 'compounding' is an important factor in making your investments work smarter. It involves generating more returns on an asset's reinvested earnings. So here, the main focus is on reinvestment of earnings within a time frame. Any investment carries a small or large risk factor with it. The challenge lies in knowing the risk and its potential consequences. Before you embark, try to figure out why you are investing. What is the goal or purpose of the investment; be it home purchase, child education or retirement.