Things to do before you start investing

There are a few things you should do before you dive head first into the world of investing. And it has nothing to do with ‘investing’ itself.

There are thousands of options and an infinite number of combinations that you can put your money into. And if you really want to run a financial circus, you need to be a trained ringmaster. But if you don’t have the skills to make money monkeys dance to your tune, there is still a lot of ‘investing’ you can do. Unfortunately, there is no guaranteed, easy way to make money by investing. Fortunately, just like every other skill, you can learn investing.

However, before you jump straight to “which stocks should I buy” (and stocks are just one of the zillion options out there!), here are some pointers that you need to answer so you can build a resilient investor mindset.

1. Know thyself.

We are all different and living different lives. Depending on your life stage, commitments and plans, the amount of money, time frame and risk tolerance and a few dozen other things, your ‘game’ will differ. You could be planning a 6 month backpacking trip or getting married in 6 months. You could be buying your first set of wheels or sending your 3rd kid to school. Before you invest, take some time to see how you hope/wish/plan/expect life to turn out in the next 6 months, 1 year, 3 years and 5 years. Having this perspective will eventually make you a better investor.

2. What are your goals?

Retiring right now may feel like a dream… but if you wanna do it in 10 years, it could be a goal. Based on what you figured in #1, if you have some life goals and you’d like to save and invest for those, it should give you a perspective on how much you need to allocate and select the right kind of investments. It's a good idea - no matter how old you are today - to write down your money goals. You can always rewrite them as life progresses.

3. What is your time horizon?

Buying an LV or a Rolex for your birthday (or for your special someone) in 6 months is probably a = short term goal.  And owning a vineyard in France in 15 years - that’s a long term goal. What's common - both these goals need money and a plan. Even putting aside a few thousand $ a month for that Rolex is a plan!
When it comes to your long term plans, time is your BEST friend - as everything you invest today will get compounded.

4. How much money can you put aside?

The right answer is - as much as you can. It goes like this…
Money you make - Money you spend - Money set aside for rainy days = Money you can invest.

You don't need to be a mathematical whiz to figure a simple equation - the less you spend on useless things, the more you can invest. Don't make the mistake of having too much money in cash. Conversely, investing everything you have is also not a good idea - setting aside ~6 months of expenses in cash may be prudent, as you never know when you may need to dip into the piggy bank for any emergency situations.

5. What’s your risk appetite?

Remember what we said right at the beginning - there are infinite possibilities when you get into investing. All investing options have a risk reward equation - keeping your money in Fixed Deposits = Low Risk, Low reward. Crypto = High risk & potentially high rewards. Digging a layer deeper, no 2 options, within the same asset classes have the same risk-reward equation.

The best investors build a diverse portfolio of cash, stocks, bonds, ETFs etc. Whatever you choose, consistency is the most important trait.
We’ll dive in to some of these asset classes in future posts.

#investresponsibly