6 Tips To Build An Investor’s Mindset
In this world of constant change, where almost everyone is ramming into your face with an insistent “Buy Now, Pay Later” mentality, it can be a little difficult to keep track of your money.
And let’s face it — most of us aren’t the best with our finances in the first place. But no worries! With these 6 simple tips, you can start investing in your future today and build wealth for tomorrow.
1. Decide What You’re Investing In
Before you start shopping around for the best deal on ETF’s, stocks, or bonds, make sure you know where you want to put your money.
Ask yourself this question: “What is my primary focus with this money? What is my time horizon? How much risk I’m willing to take?”
If the answer is likely going to be spending it or if you require money within the next 1 to 3 years, It is better to avoid putting money in the stock market. If your time horizon is short, you may try putting money in low-risk assets like Fixed Deposits, Short term or Ultra Short term bonds.
If you want to save for retirement, have a longer time horizon and are okay with volatility in prices, you will be better served by putting money in an Index Fund or Mutual Funds that will buy you pieces of stocks or bonds that are experiencing strong growth. You may also try your hand at investing in individual stocks that you think will do well as a business in the next 5 to 20 years.
Things like Real Estate, Silver and Gold can also be included for someone with a long term view on their investments.
2. Diversification Is The Key
One of the best ways to avoid the “Buy Now, Pay Later” mentality is by making your money do the work. You should try investing your money across a variety of different assets or businesses.
This way, if one investment goes south, you won’t lose everything. For example, you can buy assets like Real Estate, Gold, Stocks, Bonds, ETFs, etc. Also try to invest in a variety of business like Finance, Materials, Consumer Staples, IT, Computer Software, Power, Textiles, Steel, Automobiles, etc.
By Diversifying your investments, you reduce the risk of losing all your money and will still have some amount of money to fall back on in times of need.
3. Know The Return On Investment (ROI)
If you’re investing for the long-term, you’re probably thinking about the return on your investment.
But before you justifiably panic, realize that this depends on a lot things, such as the market’s general health, interest rates, inflation, the particular asset class and more.
When all of this is taken into account, there is really no guarantee that a certain investment will make you more money in the future than it would today.
A normal rate of return in a growing stock market is generally between 10% to 12% but this too largely varies based on micro and macro economic factors. Different asset classes have different rates of returns, so please check with your advisor before putting your money.
4. Care About The Long Term
Investing for the long-term doesn’t have to mean sitting on a cash pile for years on end.
Some of the best investments you can make are things you can pass on to those around you. These could be Stocks, Real Estate, Gold, Valuable Art pieces, etc.
Whether it’s saving for a large purchase, saving for your child’s education or just the down-payment on a house, you should be saving for things that you want to pass on to future generations.
5. Realize That Money Goes Fast…
In this modern world, you’ll find every reason to spend your money. The media too wants you to spend money at every commercial that you see on TV.
To avoid excessive spending try making a Budget. List out your expenses for the month, make a plan by allotting money to each of your expenses and stick with it. Have a budget for needs, wants, savings and donations (if any).
The world always want you to make financial decisions in a hurry and part you with your hard earned money. Don’t make dumb decisions that you’ll regret later.
6. Stay Motivated!
When it comes to investing, sometimes you have to stay motivated even when things don’t seem as if they will get any better.
That’s why you need to find ways to balance your work and home life so that you can focus on your investments. Start by Investing small sums of money and slowly add to it each month.
This way, you’ll still be able to have some spending money each month and can even use some of it for unexpected bills or expenses.
Small things like having a Good insurance, paying out all your loans, putting money in a tax saving retirement account, having an Emergency Fund and letting your money compound over the years are important to a great financial lifestyle.
Investing is a lot like playing a game of cards. There are many different types of money games, and Investing is no exception.
While you might not ever need to play a single card in a row to win the game, it does help to have a few cards from each pack (Diversify) in your wallet. That way, if one thing goes wrong, you won’t lose everything.
The good news is that by following these 6 tips, you can start your investing journey with an Investor’s Mindset.