The ₹5,000 Starting Line - how I'd think about my first portfolio
A beginner's checklist guide in simple language. No advice; just an opinion - how I’d do it.
First, the mindset that will make a ₹5,000 portfolio valuable to you
The ₹5,000 itself will not change my life or your life. But the discipline of putting that ₹5,000 into a portfolio will. This hypothetical first portfolio’s purpose is to enable us and not get stopped by the first dip. That’s it. The ₹5,000 is a gateway, and bigger portfolios will take care of themselves later.
Two options I have to begin with my investment
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The Lumpsum path: This works by putting the ₹5,000 in at once. If I have a lump sum lying around which I know I will not need in the next several years, then I would invest the whole ₹5,000 at once.
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The SIP path: If I have a regular income stream that I can dedicate a part of every month to - this is the easiest option. I put in ₹500 every month, for example.
The SIP option is better suited for someone with a regular income.
An example of how a beginner might split it
This is an illustrative example only; how you distribute your corpus depends on your time horizon and risk appetite and should be discussed with a SEBI-registered investment adviser. Here I am talking of how I would do it as a beginner.
~70% of my corpus to a broader market index fund: The whole idea of putting the majority of my investment to a broader market index fund is to own a slice of the whole market. It is simple, low-cost, hard to mess up.
~20% of my corpus to a safer / debt or liquid fund: From my experience, I’ve learnt that having some portion as cash or cash equivalent is a good strategy. It acts as a cushion so a market fall doesn’t scare you out.
~10% of my corpus as “Learning” money: Being someone who has always been fascinated by trading / active management and how market works, I would put up a tiny amount to learn actively with: where losing it teaches, not hurts.
What’s notable about this distribution is that there is no “hot tip” stock, no F&O exposure, nothing that can cause a rookie to lose sleep.
A beginner’s best friend is a boring portfolio.
The 5 steps to actually begin
- Open a demat + trading account: This is what gives you access to the stock markets. It takes around 10 minutes to open with your PAN and Aadhaar. You can use my link here; I’m a Zerodha Authorized Person and earn a commission only if you trade F&O segment, which I completely discourage for a beginner. With that said, Zerodha charges ₹0 on Delivery trades (the long-term trades). You can sign up with anyone you like; the important thing is to get started. But if you sign-up using my link, it will be much easier to reach out to me for help / support.
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Finish your KYC: This is a one-time process, and once it’s done, you won’t have to worry about it again
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Choose between SIP and Lumpsum, depending on your situation: If you have a regular income, use Coin to set up a SIP for a date right after you receive your income after you opened your Zerodha account.
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Automate it: The entire point of a SIP for a beginner is to utilise the power of small, regular investments. Spend more time on the process, less time on the markets
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Review your portfolio once a month, at best: Checking your portfolio more often than that is just going to lead to panic selling. Especially if you’re a beginner, review once a month and make rebalancing decisions rarely.
3 mistakes that wipe out beginners
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Looking for hot tips: Any time you hear about a sure shot return, remember that there is no such thing. According to SEBI’s report, most individual F&O traders lose money.
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Getting started in F&O: It‘s extremely common to get tempted by options and futures, but those are advanced instruments with deep risks.
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Panicking and quitting after the first bad month: Markets go up and down; the people who panic and quit are the ones who lose the most. The rookie who sticks it out learns the most important lesson of all: time in the markets beats timing the markets
There‘s your starting line.