According to financial planners, you should invest 10% to 15% of your annual income.
While most people are aware that they should invest, they are not very clear on how, or even if they should in the first place.
Understandably so. It is indeed more comforting to stash our money in a bank than risk losing some or all of it. But this isn’t always the best idea.
While banking your money keeps it safe, it does nothing to grow it. If you are looking forward to financial freedom, you are likelier to get there faster by putting your money to work.
Regardless of where you are in your investment journey, there is always room for growth.
Here are some pointers to help you become a better investor.
Diversification means spreading your investments around to lessen your risk.
The idea around this is that should one or two investments perform poorly; your entire investment capital will not be wiped out.
However, while diversification will help cushion you against negative shocks, it’s not a guarantee against losses nor an assurance of profitability.
2. Make Things Easy
Obviously, having numerous accounts with similar investments does not support what diversification is meant to do. Neither is having dozens of poor-performing portfolios.
Instead, simplify your investment journey by having as few accounts as possible and making several well-thought-out investments.
This makes your life easier, and also allows you to track individual accounts and make adjustments when required.
Remember, it’s not the number of accounts that bring profitability, but the quality of the accounts.
3. Improve Your Financial Literacy
While you can get by depending on investment pointers from third parties, it would be ideal if you were well- equipped to analyze financial information yourself.
You want to understand final reports of companies of interest, sift through business information in the media, and even from brokerage firms.
You can improve your literacy by taking finance lessons online and reading blogs and books about investments. You can also consider enrolling in an accounting course.
Luck and skill are not the same. Going into an investment blindly might work out great for a while, but only for so long.
4. Cast a Wide Net
While monitoring local markets is easier, it should not deter you from investing globally.
It has been proven that diversifying across countries whose market cycles are not perfectly correlated can lower an investor’s risk of returns at the given level of expected return.
Another reason why smart investors diversify globally is to take advantage of the depreciating currency.
The internet has made information readily available. There is no cause to worry about the ability to monitor market trends or your global investments.
5. Be Involved
Finding a good, reliable investment advisor is not reason enough to hand over your money and walk away.
Even with someone handling your investment portfolio, ask questions, check-in, read, and engage them occasionally.
If you fail to run your investments as you would a business, you inadvertently expose yourself to unnecessary risks and poor returns.
6. Think Long-Term
If you are the type of investor that rushed to offload whenever there is a slight dip, you are unlikely to achieve much through investments.
Investing requires patience as much as it requires skill.
When you work on your financial knowledge and get a competent financial advisor on board, let the market run its course.
There is no Magic Pill
While you cannot control the market, there are smarter ways to invest that can improve your outcomes. And do not be fooled that you must have lots of money to start thinking seriously about investments. Start with the little that you have.