Once you’ve decided that you want to start investing, the next natural question is where all should I invest?
Depending on your risk capability there are various instruments where you can put your money. For simplicity, assuming you’re a novice investor, I’ll list a few instruments you should consider.
Emergency Funds (EF)
Before you get into building wealth, first and foremost build your emergency fund. It is from this fund you’ll funnel your emergency expenses without stressing out. For example, if your apartment requires pipeline fixing you can dig into your emergency fund. It can also be a lifesaving instrument if an unfortunate event such as losing your job occurs. Once you’ve used a part of your this fund, make sure that you rebuild it.
How much should your emergency fund be? For some next three months is enough, while for some next 6 months of expenses is enough. Since I’m paranoid for most parts and a conservative investor, I have an entire year of emergency fund built.
For example, if your monthly expenses including your EMIs is about 30k / month and you’re fine with 3 months of runway, your emergency fund should be 30k*3 = 90k INR.
I have previously written about why you should invest in PPF and I’ll re-iterate. PPF is one of best savings instrument to start investing in. Do not let your money lie around in a savings account if you do not immediately need the fund.
Once you’ve maxed out your PPF account, you can start investing in Mutual Funds depending on your risk capability. You can also put a part of your emergency fund in Liquid Mutual Funds.
I follow the rule of 50% in liquid mutual funds, 15% in savings and rest in FD.
We will discuss more about Mutual Funds in coming blogposts.
Fixed deposits (FDs)
If you’ve taken investment advice from your parents, you’ll know that the older generation loved pumping in money into Fixed deposits. I don’t like putting in money in fixed deposits though a part of my Emergency fund is in fix deposit. Besides my EF, I’ll probably never open another FD much to my parents disappointment.
If you still have money left after maxing out PPF, MF SIPs, EFs, you can think about putting money in stocks. It’s risky to invest money in stocks and you should put as much as your risk appetite. I have 10% exposure to stocks in my portfolio. I’ve lost some money and have gained some. You need to research and know where to invest if you’re thinking of putting money in stocks.
Just like stocks you can also put in money in commodities. I have not experiment this instrument as of yet. However, I plan to check it out in future and will update this blogpost once I’ve gained experience.
I’m not a huge fan of investment in Gold. People call it safe investment but since I’ve started earning, I haven’t seen the price of gold go up. I bought my first gold coin @ 30ish thousand. And the price of gold has stayed stable. I wouldn’t want to lock money into gold, it’s not as liquid as FD.
The older generation argues that you can get loan against Gold but you can very well get a loan again an FD or your PPF account as well. Stay away from gold but take as much your parents gives.
Do not make a rookie mistake of investing in LIC. Buy a term insurance instead.
There are a bunch more instruments to invest in but the above listed ones are a great start. More important is to keep track of where all you’ve invested and keeping targets.
Here’s a basic Google Spreadsheet to track your investment overall. Over a period of these blogposts, we will keep on updating this spreadsheet to add more information – https://docs.google.com/spreadsheets/d/1-ez1HQDINkktfQivO_UkJjSMx6yXEocojJgKow8CVVk/edit?usp=sharing. You can make a copy of this spreadsheet and start tracking your networth.