A Layman’s Guide To Successful Investing

A rather widespread misconception suggests that investing is a complex activity meant only for experts. Admittedly, certain investment products and strategies are complex, but investing per se need not be complex. More importantly, one doesn’t have to be an expert, to become a successful investor. Indeed, even a layman who is willing to be disciplined and diligent can become a successful investor. Here’s a layman’s guide to successful investing.

Start early

Let me confess: When it comes to investment advice, this is a cliché, but it is spot-on, nonetheless. It is never too early to start investing. Whether you are an intern surviving on a measly stipend, a rookie in his first job or a senior executive, you must save and invest.

An often-heard excuse for not investing is—“I don’t have sufficient monies now. I’ll invest when I have accumulated enough”. This is a cardinal mistake. Start investing with what you have, and then keep adding to it. For those who claim that they can’t save at all, scan through your expenses and you will come up with ways and means to save money. Starting early means you have time on hand, which in turn will help you capitalise on the power of compounding, and grow your wealth.

Educate yourself

Sure, there are investment advisers and financial planners who are equipped to manage your investments. But it will help in no small measure, if you equip yourself with investment-related information. The intention is not to become an expert, or step into the shoes of your adviser; rather it is to enable you to make informed decisions.

For instance, when your adviser/financial planner lays out choices, being informed will enable you to deliberate and make a choice that is apt for you. Moreover, as an informed investor, you will be better equipped to manage your investments and finances. There are several investment-related websites and publications. Identify your areas of interest, and read up as much as you can.

Be resilient

While investing, the importance of having a sound temperament cannot be overstated. This is especially true for investors in market-linked instruments such as equities and mutual funds. Market fluctuations can and will test your resolve as an investor.

For instance, when equity markets are on a downward spiral, one might be tempted to cut losses by selling-off investments. However, a resilient long-term investor will typically use a downturn to add to his investments. Likewise when markets enter frothy territory, he will be disciplined and not go overboard. The ability to block the noise, and maintain a sharp focus on the basics of investing at all times, is worth its weight in gold.

Develop your investment style

Investing is a personalised activity. Your investment decisions must be guided by what is right for you. For instance, simply because a friend dabbles in derivatives, or your colleague invests in small-cap stocks, there is no cause for you to follow suit. Admittedly, it takes a while to develop one’s investment style, but it is a doable task. This is where being informed about various investment avenues and aspects of investing helps.

A major upside of developing an investment style is that it makes investing a stress-free experience (as it should be). If you are at home with your investment style, you will be able to identify situations when it will not succeed, and navigate such periods without panicking.

Avoid unnecessary comparisons

The purpose of investing is to achieve investment goals. For instance, you might invest to accumulate wealth, set up a retirement corpus, or provide for your children’s education. If your investments help you to provide for those goals, you have succeeded. Do not complicate matters by comparing how your investments have panned out versus say those of your friends and acquaintances.

You will do yourself a big disservice by making such comparisons. For instance, if someone else’s investments have fared better, it is likely that they were invested in different avenues suited for them. As long as you have met your goals, you are no worse-off.

Happy investing!