“ Investing isn’t about beating others at their game. It’s about controlling yourself at your own game“
Benjamin Graham
Investing is an exact science. I don’t mean it is the same for everyone because I believe we all have different risk profiles. It is a science because the principles that guide investing apply the same way across all investments. Just like the law of gravity that is consistent and applies everywhere it is best to align yourself so that you avoid being disappointed or worse still losing all your money.
And though it is a science, there is also a subtle art because what we are comfortable investing in ranges from person to person and largely depends on our life circumstances. What is essential is to get the science correct and apply it to yourself. Let’s outline some of the essential steps you need to take in investing
1. Start by understanding your risk profile
We are all wired differently, in life as in finances you need to understand what your risk profile looks like. If you are not sure where you fall, take a financial risk profile quiz, so that you are clear where you fall, whether you are risk averse, risk neutral or you aggressively seek out risky ventures. No profile is better than the other, sometimes you reprimand yourself for not being a risk taker while in actual sense your temperament is just not wired in that way. Knowing and understanding yourself is half the investing battle.
2. Check the available investment options
Now that you know yourself, the first step is to find investments within your comfort zone. The idea is to make it easy for you to move into savings. For instance, a risk-averse investor could choose to probably start fixed deposits, Money Market funds, and investing in Treasury Bills and Bonds. For the medium-risk takers, Balanced funds that have both the treasury bills & bonds as well as shares would probably work better. Real estate would be something worth considering as well. For risk lovers trading in forex and cryptocurrency would work.
It would be a good idea to have a slow start so that you ease in as you increase your confidence levels, especially when venturing to less comfortable investment avenues. Once you determine what you will invest in then set yourself up, by filling in the necessary paperwork. I find that the administration part of investing is where we procrastinators thrive. With the usual, I’ll get to it tomorrow, when I’m less busy, and before you know it three months are gone, and the money you intended to save, has long found “alternative use.”
3. Determine how much are you investing and over what period
Having established what you will invest in, the next step is to determine the amount you want to invest and for how long. This is because in investing, consistency is key. Better invest a modest amount monthly than wait to get a lump sum to invest. I can’t tell you how many times I hear that statement, I’ll invest when “a deal, sails through”, never mind that most of us will go through life without ever getting “the deal”. And that’s not a bad thing because the journey to wealth is filled with consistently showing up, daily. It is intentional, not accidental. Make a plan of how you will be investing. On this, my rule of thumb is to automate, automate, automate. The less willpower you use, the higher the chance that you will be successful.
4. Invest as planned
Get on with it, jump right in. There is never going to be the best time to start, so start today, and then deal will the jitters. And here is where automation will sort you out. Because once you have the standing orders, or the check-off in place, then you don’t have to struggle to remember when you need to transfer whatever amount, it will be transferred without your intervention.
5. Assess and adjust as appropriate
As you invest, you need to monitor how your investments are doing. I don’t mean you spend every waking moment glued to the business news and analyst reports. But do have a healthy appreciation of how your investments are doing from time to time. This is why you need to initially invest where your risk profile places you. Where you find opportunities, get in and pump in more capital, where you need to readjust your portfolio do so. Empower yourself by being intentional because no one has your best interest more than yourself.
6. Put your investment on autopilot
Especially for investments that are through third parties such as shares you could have a mechanism to automatically buy certain shares monthly or quarterly. So you are not caught up in the cycle of constantly being in analysis mode. It reduces the pressure if you know what you need to be investing in say for the next 6 months and have that done on autopilot.
There are some pitfalls that as an investor you need to avoid.
a) Take advice from people who don’t have your best interest
And you can tell them from afar, your friend who is always belittling your ideas, even when they have nothing to show for what they do. Taking advice from someone who has no experience whatsoever in your interests. Even advisors and professionals may be clouded by their need to be paid a commission and may give you advice that is not suitable for you. Always sieve and weigh the advice and then act on it or discard it. To counter this surround yourself with people and information that you need to help you reach your goals.
b) Jumping from one investment idea to another.
My people who jumped onto the quail bandwagon, and pyramid schemes I’m sure you have tales to tell here. In investing, data or information is everything. Don’t be lazy, put in the hours of reading and research, ask all the questions you have to the right people, and then invest in what you are convinced of. Jumping into every flavor of the month will make you broke very quickly.
c) Investing in ventures that will cause you sleepless nights
No investment is worth losing sleep over. I know as entrepreneurs that is easier said than done, but I’m talking about investments that are constantly keeping you awake at night, especially if you have put all your savings into such a venture. Hear me out, better invest where you will get lower returns but enjoy peace of mind than aim for the quick and fast return but have no peace. That is not investing, it is gambling.
My submission is, investing does not need to be an adrenaline inducing event. Once you figure out your investment style and risk tolerance, you just need to action it, and then repeat the cycle.
So there you have it, do enjoy picking your next investing venture!