– With 2019 coming to an end, lots of people are taking stock and making resolutions for the coming year
– Among the most common ones is wanting to make better financial decisions and deciding to invest
– However, deciding what to invest in and where can a challenge
For a first-timer, the world of investing can be intimidating because even seasoned investors encounter challenges, including over-diversification, bad timing and information overload.
The investment journey is full of uncertainty and risks, but with a deliberate approach, it can be a worthwhile venture. If you have decided to make 2020 the year you change your life through investing, here are a few tips to start you off:
Set investment goals
Ultimately, your goal is to make money, but ideally, what is it you want to achieve? This matters because it will affect the type of investment you end up making.
If you are saving for your children’s higher education, for instance, you want an investment with low risk, which appreciates steadily over time.
If it is a more immediate goal, such as paying for your wedding, you will want to consider an investment vehicle with flexible withdrawal arrangements and that assures you that your money will be available whenever you need it.
Consider your financial position
Your financial position is definitely another factor to consider since you need to know the cost of locking cash in an investment where the returns are not immediate.
Setting smart goals is crucial for any serious investor. Other goals include buying a house, starting a business, saving for retirement, or even creating a legacy.
Once you are clear on why you want to invest, be realistic about your finances. Make sure that the amount you’re left with after investing is enough to meet your regular expenses. This will prevent you from having to dip into your investment prematurely just so you can make ends meet.
Today, you do not need so much money to invest; you can start with as little as Kshs 1,000. This means you don’t have to punish yourself by investing more than you can afford to.
Be willing to start small. Once your finances are in order, learn a bit about investing so that you are able to make rational decisions.
Fully understand your investment vehicle
Find out as much as you can about stocks, bonds, mutual funds and minor details such as diversification and portfolio optimization.
This will go a long way in ensuring you fully understand the dynamics of the investment vehicle you pick.
Set your priorities
Setting priorities will help give you focus. What is more important to do first, build a house or save for retirement?
Your age will have a big impact on what you choose. Focus on what is important and build on the rest progressively.
Starting simple is also crucial, especially if you are a first timer. There is no harm in being ambitious, but if you take on very risky investments with the expectation of earning quick returns, it may end in disaster.
Test the waters first. Invest a small amount in a fund and monitor the performance. If you succeed with those, then slowly you can expand to more complex investments.
Diversify your investment
Finally, invest. If possible, invest in diverse areas so that you protect your capital. This just means not putting all your eggs in one basket. When you diversify your portfolio, when one investment does badly, it is offset by the others that do well.
Always study your portfolio to find out what works best with the market conditions at a specific point in time. Other investment options include unit trusts, real estate, and private equity vehicles, which offer attractive returns.
In conclusion, becoming an investor is a worthwhile undertaking, especially if you take the time to understand the entire process and streamline your goals. Making a smart investment also requires commitment.
It is not about hearing about some fund or some investment opportunity and blindly taking your money there. There is risk in investing, but an investment strategy mitigates many of them. So if you are considering investing in 2020, now you know what to do: invest smart!