To understand how to invest wisely, first of all, you need to know why to invest. Only if you understand this part clearly, then you can move on to know how to invest wisely.
Where money is concerned, there is no greater truth than the saying “money begets money”. The more one makes money, the easier it becomes to make it grow further. It is however important to remember that a certain amount of know-how to invest wisely and discipline is necessary to make money grow.
Most people endeavor to earn money to make a living. The money earned is spent in meeting all the necessary periodical financial obligations and liabilities. Any excess of earnings over expenses is savings.
This money, or savings, is the seed to the process of investment. Savings lying idle can lead to its erosion due to inflation so it is a wise decision to seek avenues for investing this money gainfully. It is at this point the people start investing.
Know how to invest wisely
Simply stating that one should start investing, is easier said than done. To know how to invest wisely, there are various conventions and rules which need to be considered carefully in order to understand the intricacies of investment.
How to Start investing wisely?
Potential investors, who seek to know how to invest wisely, need to get acquainted with the basics of investment.
Similar to the “Ten Commandments” in the Bible, here are a few commandments which every investor should know, to understand how to invest wisely, when they begin their journey into the world of investments:
1. Start investing early:
It is never too late to start, but the sooner one starts to invest the better it is. A head start can actually help people in retiring rich. It also helps to gear people better while faced with financial upheaval and credit crunch.
Starting to invest early, benefits the investor by taking the stress out of financial emergencies, which come up in life unexpectedly. People find themselves in a better position to meet the different financial requirements at the various stages of life.
Starting to invest early is the first step in knowing how to invest wisely.
2. Set Investment Goals:
Goal setting is important before venturing into any endeavor and while starting to invest it is no different. A well laid out financial plan with a definite and achievable target set for a specific time frame is the essence of investment goal setting
In order to figure out how to invest wisely, you need to have direction that takes you to your financial destiny. This direction comes from investment goals.
3. Invest Regularly:
Regularity is a hallmark of a disciplined approach and those who want to learn how to invest wisely should know this. Investing is not a one-time exercise. The factor of continuity is useful and helps to deliver good returns on investment.
The habit of regular investment is sure to stand investors in good stead in the long run. More often than not, it facilitates healthy growth of money through the process of compounding.
4. Be Patient:
Patience is another virtue which people learning ‘how to invest wisely’, need to imbibe within themselves. A patient investor is well rewarded by healthy wealth creation which can never be achieved overnight. Long-term investments are more likely to provide good returns as the risks are mitigated due to the time spread of the investment.
Tips on how to make New Investors Wealthy and Wise
Once the commandments have been understood, potential investors need to gather knowledge on ‘how to invest wisely’ so as to become a wise and smart investor. Here are a few useful tips to better equip the investor with how to invest wisely and make them successful in their quest to grow money:
1. Understand before investing:
Always look before you leap. It is of utmost importance to understand the nature and possible consequences of a particular investment before actually investing in it.
If the investor does not know what the particular investment is all about, then how can he invest wisely? So it is best to avoid it.
2. Invest as per the investment goal:
Whatever one chooses to invest in, stock, share, bonds, fixed deposits, real estate, etc. it should be aligned to the investment goal. Going after a share or group of shares just because it is being hotly traded can be detrimental to the interests of the investor and may hamper attainment of the goal.
Investing as per the investment goal is an effective strategy on how to invest wisely.
3. Select investment instruments wisely:
Knowing how to select investment instruments wisely is an integral part of ‘how to invest wisely’.
Requirements change over time and the investor has to choose instruments based on the investment priorities. Investment instruments for daughter’s marriage or education of children will differ from those required for purchasing a house. Instruments used to save for retirement will differ from those used for vacation planning.
To know how to invest wisely, gaining knowledge on different investments suitable for different time frames is important.
4. Safety Net:
This is an important message on how to invest wisely. It is better to be safe than sorry. Aiming to get rich overnight can spell doom. The investment portfolio should be such that it is evenly balanced between the low risk and high risk options.
Also invest in instruments which are regulated by the regulatory authorities. By investing in unregulated assets, you are taking blind risk. Taking well calculated risk and avoiding blind risk are vital wisdom on how to invest wisely.
5. Seek help of professionals and wise counsel:
The world of investment may not always deliver what it promises to deliver and behind the shine there may be a scam. So it is always good to seek professional advice Knowledge is strength, always.
Professional assistance will help you fasten your learning on how to invest wisely.
6. Keep it simple:
It is not always necessary to adopt complicated investment strategies to achieve one’s investment goals. Spreading out the investments in different types of mutual funds can be good enough and more effective than researching, tracking and investing in structured investments and alternative investments which are volatile and unpredictable.
‘Keeping it simple’ looks like a simple idea; but it is a profound and powerful idea on how to invest wisely.
While investment and returns sound exciting, they can be a very boring and staid. Patience, simplicity and knowledge are three important aspects on how to invest wisely, which if subscribed to, can make the investor smile at the end of the day.
The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at firstname.lastname@example.org