There is a lot of enigma around the capital markets for the lay people. They are so afraid about the risks attached to the capital markets, that investing in fixed income generators is what they settle for. But then if you really want to earn inflation-beating income, you have to shed away all your fears and take baby steps towards investing in the capital markets. So here we go, with a beginners guide for those looking to start investing in the capital market. Read on:
How much of your investments should be in shares?
Well, this totally depends on your age. When you’re younger, it’s a lot easier to bear risks and recover from losses if and when they occur. It’s easier to experiment, make mistakes, and learn from them at a younger age – so it is advisable to take the maximum risk at this age. The rule goes as such – subtract your age from 100 – the resulting figure is the percentage of your money you should be investing in shares. As you age, this number will reduce – which means more of your funds will be in safe, secure, fixed income yielding investments.
How many types of stocks should you buy?
Stick to this excellent rule of investments – place your eggs in different baskets! This is a fantastic rule which keeps you secure from the fluctuations in the market. The market is subject to ups and downs with certain stocks performing well and others losing out. So in this scenario, if you have your eggs in different baskets – that will leave you worry-free and with a steady flow of returns. Make sure you research thoroughly and invest in shares of low risk, medium risk, and high risk – and you’ll be good to go!
Whether to opt for withdrawal or reinvestment of dividends?
Now, this totally depends on your current financial situation. If you require the returns to manage your significant expenses, withdraw them as and when the dividends are announced. If you can do without withdrawing the dividends, it’s best you reinvest them. Statistics have shown that reinvested dividends have reaped way more returns and have proved to be very beneficial not only to the company offering the shares but also for those reinvesting the returns.
Taking risks and seeing how you fare through them is the only way you have – you have to brace yourself for two extreme scenarios – exorbitant returns or equally magnanimous losses.