If you are planning to invest your first ₹5,000 or $100, it means you either had your first salary or you want to invest surplus pocket money that you have.
This article will help you guide how to take the first step and suggest a way in which you can invest your funds, there could be many ways that you can invest your money as it is called personal finance for a reason.
Before we go into suggestions and opinions, let’s understand why you should invest. Investing is very personal and it is often driven by factors that are usually determined by individual choices.
Some might choose to settle with fixed deposits receiving fixed income with less risk while some might go all in risky assets to get rich quickly or make money.
In between two extreme points, it’s you who decides where you want to be.
Risk-return tradeoff is one of the most important topics in finance. Each asset class has a different risk and return same as an individual, so now you can correlate this and say that, your pick of asset will be different from others because the amount of risk you want to take will be different from others.
If you are curious you can read more about Haryy Markowitz’s theory.
Beating inflation, creating wealth, passive incomes, and intraday trading all are reasons one might want to invest. We live in an environment where prices of goods increase every day which causes the rupee/dollar to lose its value, so it becomes crucial that we invest and let our money grow at a pace that at least matches the pace at which prices of goods increase otherwise with ₹100 today you can buy 2 kilograms of sugar, tomorrow you might get just a kilogram.
Investing ₹5,000 or $100
Investing ₹5,000 or $100 is the easiest decision, why because it is a relatively small amount compared to a decent-sized portfolio, now I also advise people to diversify their portfolio but you simply can’t have a portfolio for ₹5,000 which makes your decision very simple.
Let’s understand a few asset classes that you want to put your investment in and I will suggest one at the end. We will start with less risky to the most risky assets.
1. Fixed Deposit
A fixed deposit gives your fixed annual income with almost zero risk, the only risk is that what if the bank goes bankrupt, but trust me even in the case of bankruptcy you will get your ₹5,000/$100. (Not recommended)
2. Bonds
Bonds are also a type of fixed-income security that gives you a fixed amount periodically but some bonds give more payment than a fixed income depending on which body has floated the bond, a high-risk new company will give you more return than a government bond. (Not recommended)
Gold works very well in a well-diversified portfolio, where you need an asset that grows at a steady pace beats inflation, and shows very little volatility, but we are not creating a portfolio so not recommended.
4. Stocks(Equity)
The amount we are talking about here, investing in one or a couple of stocks makes sense because now you rely on one factor that is the company will do better in the future.
This doesn’t mean the first company you see, you go for it. Picking a stock is both a complex task as well as an easy task. Picking a well-known company that you are optimistic about might do the job for you, on the other hand finding a company that has no highlights but great potential can be complex.
It’s you who will decide which path you want to take, consequences? The return on the investment, the high risk might reward you with high returns but in general also equity market tends to be riskier than the fixed income market and has given more return.
So. if you want my advice pick a stock and invest all in one stock, you might yield a good return.
Why Not To Diversify?
Diversification works well when you either have a good lump sum amount or you will be investing regularly to build up a portfolio. Think it of this way you have 100 Rupee you went to the fruit market to buy fruits, now the cost of each fruit is Rs.50, so what’s the best case scenario to either buy just one fruit or buy two different fruits, you will not ask the vendor to cut the fruit in half and give you four fruits, that will not make sense and there is a possibility that it might get rotten.
So, as I said investing is very personal. Making a rational decision in investing will make your chance of thriving much better. (Read the rational decision here).
Conclusion
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