3 things to consider before you start investing

Dhirendra Kumar, CEO, Value Research, says that new investors should consider three things before starting an investment – ​​emergency fund, health insurance and life insurance. Edited excerpts from a conversation with ET Now:

What would be your advice to a young man who is now going to build a portfolio?
I would not like to give any recipe as that recipe or standard recipe may not be valid for everyone. It can be a function of your age, background, ability to assimilate the way things work, etc. But I would say that everyone should understand a little bit and at the same time everyone should understand the steps.

For example, the first step should be to have an emergency fund. Don’t invest unless you have credit card debt. Get rid of it first because no investment is going to generate a return greater than the cost you are making on it. The only loan that a person can justify in his life is a home loan. Beyond that, the only other debt that can be justified is if you have to borrow something in an emergency. But if there is any other standard lending, then ideally you shouldn’t invest because you are not a company.

When it comes to building blocks or foundations, three things come to my mind. One is to have an emergency fund. It can be different for different people. Do your own assessment and no one else can help you because you know your situation best – it depends on whether the kids or old parents in the house and how much money will work for you.

Next comes health insurance as it can hamper all your savings and investment plans. Then if you have a financial dependency, you should have life insurance, and that too a simple term insurance.

Keep these three things and then you are ready to invest.

How should individuals plan for their emergencies as insurance is very expensive in many cases? Would you say they should have a bigger emergency fund?
You should keep a margin of safety with your savings. You can’t do it in a very trivial way. Many expenses are unpredictable. Many of these expenses will not be covered under insurance.

So you should have maximum equity. Make a systematic plan and most of the planning should not be left to the experts as the greatest expertise comes from you.

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