We live in a highly disruptive and volatile world. As businesses and industries are transforming, most working professionals today live under a cloud of uncertainty and security of their jobs. Today, more so than ever, it is important to be financially secure and make the right investment decisions.
Now, getting started with investment might seem like a daunting task, because you must learn new concepts and attain new knowledge. But, what if, you begin with certified tips and suggestions from successful investment bankers and fund managers on how to invest smartly? Not only will this provide your investment decisions with years of cumulative experience and knowledge, but also practical insights.
People aren’t investing due to lack of knowledge
It is a known fact that investing money in the right manner is vital as it lays the foundation for a better future. But how many are investing their money for a comfortable life? A survey shows that almost more than half of respondents say that they do not make an investment of any kind. The primary reason for not doing so is lack of money, which reflects on the fact that there has been minimal wage growth over the years, or that the money people are earning is not being spent or appropriately utilized.
Another key finding of the report is the fact that people also undermine the importance of investing, as close to 15% showed an apparent lack of interest in investing anything that they earned. Furthermore, other major reasons why people don’t invest is due to lack of knowledge, or the fear of losing money.
However, history has shown that people who are willing to learn and get over their fear are the ones that achieve success. We have a great example in the multi-billionaire Warren Buffet whose success is to be attributed to the smart investment decisions that he made. He not always followed conservative or traditional investment wisdom but was always aggressive and made some smart decisions that proved to be successful. Let’s take a look at what we can learn from the likes of Buffet.
Ten Smart Tips to Invest Money
- Keep the time horizon in mind
Michele Ferrario points out that it is always important to understand the time frame while making investment decisions. A general 50/30/20 rule says that 50% of your income should go towards taking care of living expenses, 30% of discretionary spending, and 20% in investments. However, you can change the ratio, keeping in mind the time you have to reach a particular financial goal. For instance, when you are young, you can allocate a higher amount of investment. Similarly, once you have closed a short-term personal loan by paying all EMIs, the surplus money can be invested as well.
- Start investing early
When it comes to investing, there is no time as ‘too soon’ to begin. Many experts echo the sentiment that there is no right time or amount to start. An individual should start investing as soon as they start earning irrespective of the amount they can invest. Almost all successful people have a common history of starting their investments early on in their lives. Thus, the earlier you get into the habit of investing, the easier it becomes for you to reap in benefits of investing.
- Diversify your investments
Experts say that not diversifying is one of the common mistakes that people make while investing. Diversification essentially means investing in a range of different investment tools and schemes to ensure that even if one of them underperforms, the others mitigate the loss. Thus, you should invest in various asset classes to ensure that the risk exposure is kept optimal. Warren Buffet has also advocated the need for having a diversified approach while investing. This is also seconded by Michele Ferrario of the online wealth platform StashAway.
- Don’t follow the crowd
Warren Buffet, the poster child of a self-made investor, advises to not follow the herd. He advises not to pay attention to what others are doing instead do the opposite of the prevailing sentiment if you wish to invest smartly. He famously says, “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” While this might go against many people’s natural instincts, but it is important to remember that only people who are brave to take decisions on their own can earn a big return from their investment.
- Evaluate all associated risk factors while investing
Now, while it is important to not follow the crowd, it is equally essential to assess and evaluate the risks involved while investing. While almost everyone wants to have a higher return on the money invested, people forget to consider the risk factors involved. Experts maintain that the right investment is always made by managing the risk appropriately involved.
Find out as much information as you can about the company, scheme, instrument, or program you are investing in and its past performance. Brush up your knowledge on what’s happening in the economy to indicate future disruptions and opportunities. And to ensure that you don’t fall into a debt trap because of one wrong investment decision, avoid making investments based on instant personal loans.
- Align investments with personal goals
It is important to start investing with a goal in mind, i.e., one should have a clear understanding of the purpose for which the investment needs to be done. This can vary from retirement to your child’s education or buying a new house. Investing with a specific target would help in making better and informed decisions leading to the achievement of the goal soon. Not only will this give you purpose to make better decisions, but it also motivates you. Once you achieve your target, set new goals, and start afresh.
- Keep emotions in check
John Bogle, the founder of the Vanguard Group of Investment companies, advises investors to keep their emotions under check. He cautions not to get carried away and have “rational expectations out of the future returns.” It’s best to not let the obstacles and volatility of the market dictate your reaction or get to you. This sentiment is also echoed by several other experts who advise investors to be practical and be aware of their risk-taking capabilities before investing. Investors often undertake huge risks while investing based on emotions, and more often than not, end up making poor investment decisions.
- Always verify the information before investing
Experts advise investors to always have a sound knowledge of companies before investing. You must study the company carefully by evaluating its balance sheet and future growth prospect and also verifying the information from more than one source before opting in to invest in it. Comprehensive research naturally helps investors in making a well-informed decision. Many other experts are also of the opinion that it is important to understand the potential of the company or investment tool by evaluating its current performance and its prospect before investing in it.
- Live within your means
Even the most successful and wealthy investors suggest exercising restrain when it comes to giving in to your wants, whims, and fancies. They say that it is critical to understand how much you earn and how much can you spend, and where can you spend? The most crucial step is to understand the importance of where the money that is being earned needs to go, which will help the person to live within the income he earns and take his investment decisions accordingly. Once you can sustain your existing lifestyle comfortably, you should invest all the surplus income or savings.
- Automate the investment
One of the most effective methods of making a smart investment decision is to automate the payments, and today, it is very easy to do so. You simply need to set an auto collect or auto-debit facility from the account you want your fund transferred. This will not only instill discipline in your investments but also ensure that you don’t miss out on your monthly contribution to the fund. Furthermore, if the investment is automated, it will help you realize that the fund is not available fur splurging and prevent frivolous expenses. What’s more, you can also set up different investment funds for varied purposes, like investment, travel, or purchasing a house.
Thus, having the discipline and a long-term vision is crucial to making successful investment decisions. It doesn’t matter what your job is or how much you save, the key is to begin investing and then do it regularly. Make sure you assess the risk, research, and also check the market sentiment before taking a call. Lastly, no matter if your goal is a short or long-term investment, it is vital that you keep learning about how to invest right.
Note: The above investment tips and advice have been collated from existing news articles and reports and should not be construed as professional investment advice from PaySense.
Aahna Gandhi is an enthusiast traveller, writer and a PR Professional. She likes sharing memorable moments from her travels and inspire others to live a life full of wonder. Known for her content, she has worked for travel, technology, lifestyle, health sectors as well as finance.
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