HOW TO START INVESTING IN EQUITY AND GROW YOUR SAVINGS FASTER THAN INFLATION WITHOUT SPENDING TOO MUCH TIME, WITH REDUCED RISK TO ACHIEVE YOUR GOAL OF FINANCIAL FREEDOM AFTER YOU ARE READY TO START !!!

Characteristics of Equity Investments

1. Equity is risk capital so risk is inherent, skill lies in managing it to minimize it.

2. Risk and returns are co-related to a point, where this point is crossed risk is of losing the capital and not merely a question of returns.

3. Equity as an asset class give best returns over longer periods of over 10 years and more.

4. Patience and discipline along with a carefully selected strategy is required.

5. Better returns will follow if you can stick to your strategy, ignore the clutter and noise created by the media, brokers and vested interests.   

I have discussed at length various subjects understanding which is essential for preparing yourself to be ready to start making equity investments. These preparations,I am delineating again for emphasis,  will provide you with a strong base and reduce the risk.

1. Making a budget

2. Keeping a record of daily expenditures and comparing it with the planned budget at the month end to make course corrections.

3. Focused savings, sustaining the savings and increasing if possible.

4. Creating an emergency fund

5. Taking term insurance for both spouses

6. Buying your first house

7. Planning for retirement - Pension Scheme or PPF accounts for both

8. PPF accounts for children -(PPFs are NOT for NRIs.)

9. Separating business finance from personal family finance if doing business.

10.  Developing correct attitude towards money,giving away a part to more needy ones and being disciplined and patient with the savings and investments.   

Once this is done you are ready to make equity investments which are in the form of SIP meaning they are made regularly every month. These are expected to grow over a long period and are not to be withdrawn.

Now we come to the key issue of how to start investing and continue investing in a disciplined manner.

Personally I am of the opinion that this is best done taking help and learning from some one like me as it is simple but not easy and is better done with such help. This reduces the risk and learning will help you to teach others as well as make you more confident and in complete control of your money and lead you to your Financial Freedom goal.

However some may be able to do it by themselves (DIY) hence this blog is meant mainly for them.

Sequential steps

1. Decide how much you want to invest every month in equity investments

2. Understand the basics of finance if you do not have this knowledge

3. Select your criteria for making equity investments like debt equity ratio, PE ratio,book value, dividends pay out etc. There are many of them you will need to understand them and then select a few. Say 5-6.

4. Select companies which meet your criteria again say 5-6.

5. Divide the amount you want to invest in these companies every month or at a planned frequency. This will depend on your criteria selection as well as companies selected, money you want to invest and the market prices of selected shares.

6. Invest only in companies whose business you understand or get to know it if you do not understand and are keen to invest in them.

7. Explore to get an insight into the management of these companies

8. Decide a risk percentage you are prepared for every scrip you have selected. This is your stop loss for that company.

9. Shift the stop loss if market price goes up and sell if it hits your stop loss. If both of these do not happen then continue making investments as planned.

10. Stop reading or watching all media unless it is related to these selected scrips in your portfolio.

11. Focus on your work and career and plan to spend only a 10-15 minutes every day or an hour per week to have a look at your investments. Watch for the margin of safety your scrips generate as time passes.

12. Increase your savings for equity investments as your income increases along with your confidence.

13. Note that results may take at least a few years to be visible so be patient. This is a method to reduce your risk and get enough returns to achieve your goal of Financial Freedom over a prolonged period of time.You will be richer slowly but steadily. Do not discuss your success or failures as regards your investments with bankers, brokers, friends who do not know your life position and situation.They will not be able to give you any better holistic solution. In fact they will like all media confuse you and challenge your discipline and shake your confidence. All the best !!!

With one more blog on assets allocation next week, I will be closing this series of Personal Financial Management.This is what I wanted to share with those interested and also to serve as reference material for those who are learning and taking support from me on www.moneymonk.me  as well as others. In this process I have made new friends and well wishers to whom I am grateful.