I will start this post referring a book, first of all, you need to invest in education first, so the book The Intelligent Investor: The Definitive Book on Value Investing, by Benjamin Graham would be a great acquisition. Shortly, the greatest investment advisor of the twentieth century, Benjamin Graham, taught and inspired people worldwide. Graham’s philosophy of “value investing” — which shields investors from substantial error and teaches them to develop long-term strategies — has made The Intelligent Investor the stock market bible ever since its original publication in 1949.
Step 1 – Assess Your Current Situation
Define your current situation, you need to track down your expenses and pay yourself, check how much money you can invest. Make a budget plan to evaluate your monthly situation, if it is too hard for you to make a plan, start to track your expenses, like that you will know how much you use for food, transportation, and so on. After have a budget plan, you can know how much you can actually afford to invest.
It is important to know how accessible you need your investments to be, it means, how liquid. Then you can have an idea if you want to invest in real state or stocks. Own a house or a shopping mall, may be difficult to sell if you need the money fast, so if you have doubts here, you can ask for some finance advisor to help you.
Step 2 – Define your goals
Specific your goal, for me, my goal is to retire with a good income from safe investments (low risk, low gains), on the way you can take some risks as younger you are. As you can see in my previous post, there is a basic simple rule that you need 300x of what you want. If you want 5 thousand dollars, you need 1.500.000,00 dollars. With that in mind, you can use some calculators, there are few online, to have some idea for how long you need to save or how much, you can play with the numbers a bit.
For me the important points are: growth, risk and liquidity. As you defined before, you need to know how much you need to grow per month or year, some months may not be too good and others could. Stick to the plan. Careful with high risk investments, and diversify your portfolio, risk investment also has higher gains, if you are looking to build wealth over the years you may want to choose a safer investment path.
Step four – Decide what to invest in
The final step is obviously decide where to invest, there are many different accounts you can use. It may change accordingly with your risk/growth/liquidity ideals. I have written a bit in my previous post about it, first of all, create an emergency wallet in case of emergencies. Consider split your wallet in different areas, stocks, cross-country investments, forex, 401(k), something safe as well with high liquidity, bank saving accounts, and so on. One thing that I’d recommend is to have 20% or 25% of all your money in a saving account with high liquidity, may be not the best current option now, but in a crisis (it always come) you will have cash when no one else will and you will buy everything cheap.
Another point that is very important for me, diversify your areas, if you are invest 100% in tech, imagine if something happen in the sector, go also for food/beverage business, split your wallet, it helps you to avoid big crashes. It is very important to make money is do not loose it. It is hard to recover from a crash.
Step 5 – Monitor your investments
Keep track of your investment is VERY important, it helps you too have a big picture of what is happening, how you are performing, and it can help you to predict the future. Keep in mind if you are doing a great year, like 100% a year it is great, but it doesn’t mean that next few years you can keep in this rate, keep your keep your feet on the ground, research why and how, listen others opinions, they may help you with different point of view, keep diversifying your wallet if you could double in a year, it will avoid that you can loose it all if you invest everything only in one thing.
Shortly:
- Start sooner as possible;
- Research and learn from successful people, books…;
- Diversify!
rockthefinance 