What does it take to invest successfully? Most people have this wrong notion that successful investing requires a college degree in high finance or loads of experience in the stock markets. Worse still, many of us assume that it requires timing the markets or dabbling in markets that you may not feel exactly comfortable about. If you also think the same way, I have just one thing to say – Banish The Thought!
Well, don’t get me wrong! I am not saying that you cannot invest successfully if you fall in any of the above-mentioned categories. All I am saying is that you can achieve a reasonable (read above average) degree of success in investments even if you are an average Joe. How? Well, read on -
This may sound too simplistic, even stupid, but the first step in successful investing is getting started! Most of us found this the biggest hurdle to get over. We keep putting of investing till we start earning a little more, or from the next year, or…the list of excuses is too long to mention. Do not wait, start investing NOW!
This is a natural corollary of the first step. When I say start investing now, I certainly do not mean that you stop there. The trick is to keep up the good habit. Keep investing regularly, preferably every month, even if you are are left with just Rs 1000 to invest.
When the wise man (or was it a woman?) asked you not to keep all your eggs in one basket, he (or she) probably knew what he (or she) was talking about! In the context of investing, this would mean that you should not invest in just one company, or a single stock, or only stocks for that matter. Maintain a well diversified portfolio, which has a healthy mix of growth, safety and liquidity.
Do Not Over-Diversify
This may sound contradictory to Step 3, but it is not. It just means that excess of everything is bad – even diversification should be practiced in moderation! First, you will be able to keep track of your investments easily, and secondly, you would be able to achieve the critical mass in instruments of your choice.
Think Long Term
Regular investments and diversification can show there effects only in the long term. So, prepare yourself for the long haul. If you are planning to reap a windfall in three months time, you are thinking about speculation, not investment. Do not get in the habit of checking your portfolio every hour.
Keep reviewing your investments periodically. It will help you to determine any laggards or star performers in your portfolio. It will also help you to make the necessary course corrections to get the maximum returns in a safe and convenient manner.
Though it is a good idea to persist with the investment methods you have chosen, it is an absolutely bad idea to fall in love with them. If your review has convinced you that you need to get out of a particular exposure, get out at once. If you are convinced about the merits of a promising investment, go for it. Just do not do it VERY often.
The biggest secret of successful investing is its simplicity. The above seven step process is extremely simple, yet it is simplicity that beats most of us. Follow these seven steps diligently, and you will definitely become a successful investor.