Moving forward as an investor
In my previous post titled Mistakes of a Fledgling Investor, I outlined the investment mistakes I made in my earlier investments. After realizing those mistakes, I went on a quest for knowledge. I realized that I still had so much to learn on how to invest and protect my capital.
Seed capital is a measure of life; it is the amount of time taken to generate it.
I discovered the tips I outline below during my quest for more investment knowledge.
Define your goal: Investing needs to be directed and targeted. It would be best to define your goal, why you are investing, and the timeline to achieve that goal. Is it to be financially free? Is it to pay your children’s tuition fees? Is it to buy a house? Knowing the reason behind your investment would determine the types of investment that you do. Also, the timeline would help you determine how much risk you should take.
Determine your risk appetite: This point is essential because your investment should not affect your peace of mind! Your investment should not keep you awake all night worrying. Therefore, understand if you are a high risk-taker or medium risk-taker, or even low-risk taker. There are investment options for all these categories, and one category is not better than another. You can achieve your goal in each category, but the timeline might be different. To balance your risk, you could decide on a percentage system, i.e., invest 50% of your capital in low-risk, 30% in medium-risk, and 20% in high-risk. Based on your goals and timeline, you can re-adjust the percentages.
Due Diligence: This is a powerful lesson I learned on my quest. Due diligence means investigating the investment opportunity. Investigating the opportunity would include researching the business, researching the business founder/management and their reputation, the market forces that would affect the company, the volatility of the market that the business services, researching about the risk of the investment opportunity many more. Taking time to perform your due diligence or employing a lawyer to perform it is essential. Take every investment opportunity at face value (even if your closest companion proposed it), be skeptical, and do your due diligence so you can make an informed decision.
Without due diligence, you are not investing; you are gambling!
Start small: Whenever there is a possibility to invest a little at first in an opportunity, always take it. Do not invest considerable capital in a new opportunity too soon. Take your time, test the process, test the people. This lesson does not replace due diligence; it just gives you time to validate the results you found while doing your due diligence and reducing the risk.
Diversify: In every investment opportunity, there is a measure of risk; therefore, since your capital is valuable, it is wise to spread it over several investments. Please do not put all your eggs in one basket as the adage goes but instead spread it into different baskets. Do not spread your capital too thin, though. The more investment opportunities you invest in, the more time you need to dedicate to due diligence and monitoring. Spread your capital but only to the number of investment opportunities that you can manage.
Learn from others: Investing does not have to be a lonely activity. Find people around you that have achieved what you wish to achieve as an investor. Learn how they did it, pay them for the knowledge if necessary (we tend to value what we paid for). Take courses, learn how people from different countries did it. Implement their ideas, grow, and then grow some more.
I began to apply the tips I outlined above as soon as I learned it, and it has uncovered hidden traps that I would not have found a year ago in some investment opportunities that I found. Investing is not gambling, and it is not for some class of people. Following the due process will increase your chances of success. Good luck on your journey.
