Investing comes across as scary to a number of us because we think that a lot of knowledge and money is required to start the journey. Here are a few tips that would serve as a blueprint for investors seeking to make wise investments.
Outline your personal finance goals (set SMART goals)
Identifying your personal financial goals is the first step towards investing wisely. Here, you outline your objectives stating what you hope to achieve during your lifetime. These goals must be Specific, Measurable, Achievable, Relevant and Time-bound (SMART). Having your goals follow this trend would help you towards attaining them.
“An investor without investment objectives is like a traveler without a destination” – Ralph Seger
Understand your risk appetite
To invest wisely, it is important to know yourself. Understand what it is you can and cannot do. This is important because it helps you steer clear of things that are not in line with your appetite. Risk appetite refers to the amount of risk that you as an investor are willing to take to achieve your financial goals. Some people are willing to invest in options that have the possibility of generating better returns even if there may be a higher risk of losing money, hence they are said to have a high-risk appetite (risk seeking). Whereas others are only willing to make investments that give a higher degree of liquidity or stability even though the returns may be relatively lower. Hence, they are said to have a low-risk appetite (risk averse). Understand which category you fall into, accept it and choose what works for you.
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Be wary of herd mentality
Just because you are friends or family with Jane, who invests all of her income in the stock market, does not mean you must take the same path. Herd mentality (also known as pack mentality) basically explains that we are likely to do exactly what our friends and family are doing. In investment, it is important to have a mind of your own. This is because we do not all have the same income nor do we share the same risk appetite or financial goals.
Do your research
Having basic knowledge and understanding of the Capital Markets or potential investment options is also as important as selecting the food you eat every day. This activity gives insight into the Market; exposing you to news items and possible risks inherent in that sector that help you in making informed decisions regarding your investment.
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Prepare for emergencies
Unforeseen contingencies are part of everyday life. As a potential investor, it is important to make reservations for the ‘rainy days’. You do not want to stake ALL your funds in ONE investment. The key words here are “ALL” and “ONE”. One hundred percent of your income should not all be invested in one asset class. Your portfolio should be diversified in a way that it covers for “emergencies”.
Lastly, because we know this article has motivated you to grab the bull by its horns, take your first wise step with us today.
