I was thinking of writing this new blog ‘’Essential steps on Journey to become Genuine Investor’’ in first few days of new year but I wanted the dust of ‘’New Year resolutions’’ to settle down which are normally effective for a week or two, max for a month😊

Few days back when stock market was making new high every day I got many calls & emails asking ‘’Formula to become Successful investor ‘’. Honestly there is no defined formula in fact it’s a Journey where we have to face some hard-hitting questions, need to reflect on our decisions & keep commitment to financial goals. With combination of Right approach, Financial discipline & patience it is definitely possible.

I will guide you to the best of my capabilities to understand how to start this journey & how to be on right track.  Does it sound complex?  Well it’s not, let understand & explore it together

Explained below are few steps, quite honestly each of this step is worth independent blog however that would be too lengthy & boring. So will try to understand crux of each one of them in as simple language as we can.

1. Start NOW
2. Financial discipline
3. Financial literacy
4. Investment Plan
5. Monthly Budget
6. Insurance & Contingency fund
7. Cost of Investment
8. Diversified Portfolio
9. Keep your eyes & ears open
10. Have a long-term perspective
11. Ask for guidance / advice

 

Start NOW: – Based on my experience of few years I can confidently tell you that waiting for right time is not a good strategy. Best time to start Investing is when you become aware of the Fact that Investment should be done. Irrespective of investment amount, instrument of investment (except for few bad instruments like FD & LIC) & stock market situation you need to start investing. Please understand this is a commitment & not sentiment.  So immediate next question is How do we do it?

Financial Discipline: – This attribute will play decisive role in your success of becoming an Investor. One has to make deliberate efforts & conscious decisions to be disciplined. We may not able to spend as we like & it needs to be controlled & habits have to be compromised but trust me once you see your money growing you will cherish disciplined approach.

I would like to quote what Warren Buffet said:

‘’ We don’t have to be smarter than that the rest.

We have to be more disciplined that the rest ‘’

Financial Literacy: – This is more like awareness & then acting on it. We need to understand basic concepts like Cash Inflow/outflow, Asset & Liabilities, most important is Cost of Investment & Budget. Google can provide answer for most of them ,

this is extremely important because this will help in decision making. Few concepts

Investment Plan: – First & important step in Investment plan is to write down at what specific intervals / major events we would need cash (education of kids, marriage, buying of house etc) & most importantly from retirement perspective (retirement here clearly means we will stop doing work focused on money & might pursue our passion without expecting any cash flow from it). This is nothing but Financial Goal. Once we know this then Back calculation needs to be done to see what is exact amount we need invest everyday year / every month considering Compound rate of return & inflation rate. Honestly one might need help of independent financial planner for this calculation which is basis of whole investment strategy. My next blog will be on Subject of Independent Financial planner but just to give you a heads up, Financial planner is an expert who gives advice focused on your own Financial goals & not interested in selling Insurance, Mutual Fund Or Investment products (including banks). Once we know what amount need to be invested annually & monthly we need to plan monthly budget accordingly.

Monthly Budget: – If we can’t measure it we can’t control it. If we want to invest we need to understand how much money we do really have and only then we will be able to successfully meet target which we set as per Financial Goal or we can revise it. As I said above Do we have all our cash inflows & outflows written down?? How are we going to make sure that we are on control of our spend. No wonder increasing population is getting in trapped of EMI’s or Credit Card Payment. We have to write down all our monthly / quarterly / annual expense. Quite honestly if we are not in control of our expenses we can’t meet out investment target neither we can be successful investor. If you have never done it first attempt may not be 100% successful however you will get insight on your spend pattern & will eventually help you to get control of your expenses.

Insurance & Contingency Fund: –  One aspect which is very important is Term Insurance is something which everyone should think of & opt for based on your Financial liabilities, number of dependents etc. Though this is not directly related to Investment but one must think of this as commitment to family members. Would like to highlight something in here ‘Never think Insurance in Investment ‘I have seen thousands of people trapped in this badly so though od highlighting. Everyone should maintain some portion in Cash as contingency fund to make sure some unexpected things don’t hit our monthly Budget. Taking Mediclaim / Health Insurance for hospitalization is also important to make sure monthly budget is not disturbed.

Cost of Investment: – One hard hitting question is ‘Do we know what is cost of Investment?  Please understand we need to be aware of these charges which significantly bring down our returns. We need to aware, once aware we need to compare & then informed decision should be taken. Start looking at what charges are levied by service provider who ever it may be & I bet you will be surprised. Will write more on this in my next blog but start tracking this.

Diversified Portfolio: – I would strongly suggest that one must look at multiple investment instruments before taking investment decision. Simple Rule to decide on Investment Instrument is After Tax return > Inflation Rate + 4%. Equity & Mutual Funds are best investment instruments if you see returns in last few years. In fact one must diversify into multiple industries to make sure risk is spread & minimized. Even if one wants to opt for Mutual Funds investment (which is comparatively safe) multiple schemes focusing on different sectors (Banking, Pharma, Auto, Energy)

Keep your eyes & ears open: –  With changing Business dynamics where Business model is challenged due to technology changes we need to be sure we are invested in right companies. We need to keep doing a review of companies which we are invested every six months. Rather while selecting companies for investment also our awareness about social & economic development helps a lot. We need to think about how socio-economic factors will impact Industry as that insight will help us understand Sectors & best performers in each sector. I will be covering this topic in greater detail when I will suggest approach to select right companies for investment.

Have long term perspective: –  Needless to mention being Investor means having Long term perspective & being patient. In fact thinking thoroughly before taking investment decisions is first step & then doing review will help to understand whether we are invested in right companies. Will suggest ways to select right companies rather to develop that approach which will help to select right companies.

Ask for guidance / advice: – How many of us diagnose / treat ourselves if we are not keeping well physically ?? Please note that our Financial health is also equally important & we should not shy away to get expert advice / guidance. I guess we need to appreciate fact that expertise of professionals can be leveraged to earn or to increase returns from Investment. Now million-dollar question is who can be that Professional whom we can approach? Independent Financial Advisor who would help in assessing your current financial situation & who can guide in correct Asset allocation according to your need can be the one.

Well with that I would like to wrap up. Will keep sharing my thoughts. Will be sharing my initial take  on Union Budget, how it will impact your investments & your investment plans 😊

Happy Investing