10 Golden Rules For Becoming A Successful Investor
Golden rules for becoming a successful investor
Here are quick golden rules for becoming a successful investor
- Stop taking cues from where do your friends and relatives invest
- Do your homework and personalize your investments
- Don’t commit money to any investment avenue that you don’t understand
- Maintain discipline
- Be practical about your investments
- Diversification, Diversification, Diversification
- Don’t over expect
- Be flexible about your investment plan
- Monitor your investment portfolio
- Seek professional help, if needed
Oftentimes, we purchase things that we don’t really need.
Why do we do so?
Simply because we like to buy things which are in fashion or the ones which are sold at hefty discounts.
But do you know, following the similar approach in money matters can potentially ruin your future?
No! This is not an exaggeration. Wrong decisions about your finances can cost you a pretty penny.
Please don’t be scared. Managing your investments won’t be as difficult as you might think if you follow these 10 golden rules:
1. Stop taking cues from where do your friends and relatives invest
It’s not a good idea to mimic your friends and relatives when it comes to making crucial financial decisions. Their investment decisions might suit their requirements but not necessarily would fetch the same results for you.
For instance, Mr Rajesh Shah’s colleague invests 80% of his income in equity stocks and equity oriented mutual funds. For last 5 years, he has been earning around 15% returns every year on an average. Mr Shah has also been planning to follow his footsteps and invest a significant chunk of money in equities, which he would need in next 15 months.
It’s going to be a big gamble for Rajesh, since returns from equity are unpredictable, especially in the short term. Whom to blame if Rajesh losses his money?
2. Do your homework and personalize your investments
“One-size-fits-all” is a wrong approach when it comes to your investment. Before you invest even a Rupee of your hard earned money, you should ask yourself these questions.
- Will it help me in any way in fulfilling my financial goals?
- Do I have an appetite for and temperament to handle the risks associated with the investment?
- How long can I stay invested?
If you answer these 3 questions, you can be reasonably sure that you have personalized the investment plan.
3. Don’t commit money to any investment avenue that you don’t understand.
Miss Ashley Alameda got her yearly bonus last month, and she was sure that she wanted to invest money in safe avenues. Her friend recommended her 2-3 debt funds
as safe investments. She too didn’t bother to understand how debt funds worked and invested blindly. Now if inflation and interest rate movements turn unfavorable going forward, she may even lose some of her capital.
If she had spent at least some time on educating herself about debt funds, she could have avoided this blunder.
Therefore, either don’t invest in something you don’t understand or invest only after you know the nitty-gritty of the investment option you are considering.
4. Maintain discipline
Once you ensure that your investments are perfectly aligned with your financial goals, you must stick to your investment plan. And this includes, not detracting from your future investment commitments.
Mr Vijay Nayar runs a grocery shop and earns decent money every month. He cares about his family a lot and wants to save for his daughter’s education. Fortunately, he manages to save money every month. But, money lies idle in his savings account. A few months back he decided to start a Systematic Investment Plan (SIP) in a mutual fund scheme, but he never executed his plan. Such approach may not help him achieve his financial goals.
Consistency and discipline play a huge role in deciding your fate as an investor.
5. Be practical about your investments
Ms Esha Chandwani is an emotional person. She’s an unpredictable shopper too. Sometimes, she spends hours at a high-street mall and gets back home without picking up anything for her. On other occasions, she takes just a few minutes to buy expensive cloth. Unfortunately, she gets emotional about her investments too.
Recently, she bought a stock when it was at a multi-year high just because she had a gut feel that the stock would double in a year. Such hasty decisions won’t take you anywhere. In fact, you may incur losses, at times.
6. Diversification, Diversification, Diversification
Mr Iqbal Husain invests only in real estate. He believes, only real estate makes a good investment for the long term. Over last 20 years, he amassed a substantial land bank. Despite that, he is facing some difficulties these days.
He wants to send his daughter abroad for post-graduate studies in next 6 months. But, he hasn’t been able to sell any of his properties for the right price. Since he has no other substantial investment to bank on, he’s in a fix. He will either have to sell some of his properties for lower value or will have to wait until he finds a right buyer. And as you would guess, he can’t afford to go with either of these options.
Diversifying across asset classes would have helped him.
7. Don’t over expect…
Mr Rajat Patil wants to build a retirement kitty for himself and his wife over next 15 years. Both of them earn well and live a luxurious life. He expects that his investments should make him the returns that are unmatched in the market. So he puts money in all small cap stocks and lends privately to borrowers. In this process, he is unknowingly running a huge risk.
Recently he learned that one of the merchants whom he lent Rs 5 lakh, went belly-up.
Rajat could have easily safeguarded his money have he had been realistic about his return expectations. He was never in a position to judge the creditworthiness of a merchant. The merchant didn’t deny his liabilities, but he had no money to repay either.
8. Be flexible about your investment plan
The days are gone when people worked their whole life for one company. In today’s age, it’s perfectly okay to switch jobs for better opportunities and greater job satisfaction. There’s no harm in following the same principle while investing.
For example, people seeking regular income and safety of their capital haven’t looked beyond investing in fixed deposits for years.
But there’s NO reason to say “no” to Peer-To-Peer (P2P) Lending projects which earn you attractive interest in the range of 14% p.a. and 30% p.a.
The P2P Lending might be a new concept for Indians, but it’s been quite popular in the developed nations.
As you must have guessed it by now, P2P Lending platforms allow borrowers and lenders (investors) to connect directly with one another, eliminating the role of banks altogether.
P2P Lending platforms use the state-of-art technology to facilitate the interaction between borrowers and investors and provide them credit underwriting assistance too. Typically, borrowers approach P2P Lending platforms with a request to list their loan proposals on the platform. After making meticulous checks and credit analysis, P2P Lending platforms list the loan proposal for investors. It’s completely upto the investors to decide whether or not he/she wants to invest in the project. He/she can determine the amount too.
This is a win-win situation for both borrowers and lenders, as genuine borrowers get loans, albeit, at a higher rate, investors get higher returns for retaining the risk associated with lending.
9. Monitor your investment portfolio
You can’t take the performance of your investments for granted. For a variety of reasons, the performance of your investments can deviate from your expectations. It means, your investments can do exceedingly well, or they may not do well at all. In either of cases, it becomes imperative for you to re-balance your portfolio. Unless you exit poor investments, you can’t expect to do well in the long run. At the same time, unless you book profit, appreciation in your portfolio remains notional in nature.
The Periodic review helps you keep your portfolio in good shape.
10. Seek professional help, if needed
In today’s world, a plethora of investment options is available to you. But the question is, do you have time to analyse all of them? You can hire a professional to do this job for you. He/she will not only create a personalized investment plan for you but help you monitor and review your portfolio as well.
If you follow all the principals listed above, you will inch towards becoming a successful investor.