Every individual needs to invest. This should be a statement of fact which gets taught to children in school. Unfortunately, it isn’t. Most of us learn the value of investing the hard way. Too much time gets wasted either in procrastinating or in being unaware. With the onset of digital content and the deluge of information out there, we no longer have the excuse of being unaware.
The procrastination however, is something we should control for our own betterment.
If you have succeeded in overcoming the lethargy and decided to kick start your investment journey, be sure to tick these four boxes before you move further.
This is the most obvious deduction; in order to invest, you should have excess funds. To get those excess funds you must spend less than you earn, or in other words save. If you are naturally a low spender, saving will not be an issue. However, if you tend to go overboard with the expenses, then you will have to make a conscious effort to cut out some of the non-essential spending.
Saving is not a one-time activity. It is something you have to make a habit of, a regular indulgence.
Only with regular savings will you be able to accumulate a corpus to invest and eventually make investing a consistent habit too.
2. Ask yourself why
This is extremely important to follow through. Never invest without knowing the purpose or why you are doing it. There can be many different reasons to invest, you may want to invest for a holiday in three years or to buy a car or for your retirement. Whatever the reason is, you should write it down. Once written on paper, it becomes tangible and real, rather than just some desire in your head.
Knowing the why will also help you choose the right type of investment solution. For example, the investment solution for your car purchase is likely to be very different than the solution required for your retirement planning. You cannot substitute one for the other; you can plan and invest for both separately.
Knowing the purpose of your investment sets you out on the right path to choosing solutions and achieving outcomes.
3. Understand what risk means
Once you know why you are investing you will go on to picking the most relevant investment solution.
What you should know beforehand is that no investment is risk free, there is some risk in all types of investment products and you should be aware of these.
For an individual investor, investment risk is essentially the probability of losing capital invested.
You may think that a bank fixed deposit is risk free, however, that is not entirely accurate. If the fixed deposit is in a poor-quality bank you can lose capital too. Secondly, if the fixed deposit is offering too low an interest coupon, you get the stability of return but risk the value of your money de-growing thanks to high inflation.
Investments in assets like real estate and equity are bound to be risky if you are going to invest for short periods. At the same time, this is risk you need to understand and embrace for long term wealth creation.
4. Be patient
This is really the hardest of the four. Being patient and seeing the value of the planning and investing process playout, is easier said than done.
Patience is not about getting through the process, rather it is about staying with the decisions made early in the process despite changes around you. That’s the difficult part.
As the environment changes and perceptions change, you will be tempted to change the choices you made. At this point you may even feel that the long-term investment solutions are not yielding the outcome you hoped for. However, you should not be too quick to make any changes. On the contrary be slow in this part of the process. If you have done all the ground work in the early part of the process and arrived at the accurate investment solutions then you need to be patient and let your investment work hard rather than you reacting to each change in the environment.
Seeing your investment returns grow is a liberating feeling. To be able to get there you need to start the journey.
Keep in mind that the right start is important to have the best experience.
Investing is a long journey, start it with a bang of knowledge and awareness and see it work the magic of returns.