Having an alternative investment has become more of a necessity these days. Gone are the days where you could keep all your money in the bank and wouldn’t care much.You will need to invest your money other than savings accounts if you want to be financially free.
Managing your personal finances and regularly investing a portion of the money will give you great results over the long term.Your stock market investment career will not be a smooth sail for you.
Accept it! You will face a lot of ups and downs and it will be a complete roller coaster ride.
Many people, when they face losses, quit from the stock market and then spread false news that the stock market is too risky and you will lose your money. The truth is that these people didn’t accept the ups and downs of the stock market and didn’t do their homework properly. Having a successful investment journey means you will have to follow certain steps and be disciplined.
Let’s look at 9 steps to a successful investment journey:
Setting a goal is the first step in investing. Many people put their money in the stock market without any clear goal.
Define your goal. Whether it’s being financially free, having an early retirement, or traveling the world, it can be anything.
Knowing your goal gives you a head start in your successful investment journey. The more specific your goal is; the more added advantage you will have.
Example: Becoming financially free before the age of 25, or retiring before 40, etc.
“There are a lot of vehicles out there; you just need to get on the right vehicle which will take you to the place where you want to go.”
No one knows you better than you yourself. You have to understand your own strengths and capabilities and then work on it to become successful. Different things work for different people.
If you try to copy someone, you will not achieve the same success in the long term. Understand how much risk you can bear. Some people are risk lovers whereas others are risk-averse.
There are different strategies for each depending on the risk appetite. Know yourself, believe in yourself, and never try to be someone else!
“Knowing yourself is the beginning of all wisdom.”
Prepare a plan for yourself after understanding yourself in detail. Each investor will be successful by making his/her own plan and not simply following someone else’s plan directly.
Yes, you can take advice and learn how great investors invest but make sure to mold the learning according to your needs and goals.
Make a plan about which type of companies you will target, what are your criteria for selecting certain companies, and how often you will invest, only when the stock market falls or every month in a systematic way.
Planning is very important. Another reason why having a clear goal is vital.
Once your goal is clear, your planning process will be very easy because you know what you want. Once you prepare your specific plan, make sure to stick to it no matter if the stock market goes up or down or what someone else says about it.
“Failing to plan is planning to fail.”
This step is one of the most important steps that you should remember if you want a successful investment journey.
You have to accept that no matter how much you have researched and applied your knowledge, there’s always going to be a risk of losing your money in the stock market.
So you don’t want to put all your money into the stocks. You should manage your personal finances well so that you have enough money for necessities, education, emergency, etc.
Keep track of where you are spending your money and try to avoid the things that are not necessary.
Allocate a portion of your money for investing and use this money only for investing purposes.
Don’t use money that is allocated for other purposes in stocks. This can be a disaster when you will really need money for an emergency and found out that the money that you have put in stocks is in the loss.
“Beware of little expenses. A small leak will sink a great ship.”
Yes, the saying is true that “Don’t keep all your eggs in one basket.” But you should also understand that “You won’t be able to handle a lot of baskets at a time.”
Diversification is important as you can never know if some company declares bankruptcy or is caught in some fraud resulting in a huge loss for the investor. But these cases are not very common and if you carefully analyze a company and only consider quality stocks, you can increase your odds that you don’t own a possibly fraudulent company.
Many people have 50-60 or even more stocks in their portfolio. This is diworsification and this only results in messing up. You will most likely get average or below average results with diversification. Keep a small basket of portfolios.
If you seriously search for good stocks at a reasonable price, 10-12 are more than enough for most investors. This is called proper diversification.
“Wide diversification is only required when investors do not understand what they are doing.”
Almost all of us have heard this from our parents in our childhood. This is equally true in your investing career.
There are thousands of stocks out there that you can buy. You don’t need to buy all of those. Your chances of success in investing will increase if you buy stocks that you are familiar about.
Never buy stocks of companies which you know nothing about. Warren Buffet stayed away from technology stocks even when they were booming because he didn’t understand it.
Risk arises when you invest in stocks that you know nothing about. Suppose you are an employee in a software firm, you will have very good knowledge about software companies and all the competitors.
Thus, you have an edge over others in the software industry. Use this advantage in your favour. You don’t always need to be in some industry to get closer. Even if you are a housewife, you can notice which company’s products are in demand in the shopping mall, etc.
Don’t invest in stocks of a company just because someone recommends you or just because it is trending.
Reading books is a great way to expand your knowledge and understand how the stock market works and which strategies can be suitable for you. People think that they know everything and that’s where the mistake lies.
The stock market is so vast that you can keep learning something new each passing day.
There are many great books on investing like “THE INTELLIGENT INVESTOR” by Ben Graham, “ONE UP ON WALL STREET” by Peter Lynch, “COMMON STOCKS AND UNCOMMON PROFITS” by Philip A. Fisher, and many more.
There are thousands of books out there, you just need to find and read them. Along with stock market books, you should also read books on psychology and how to change your mindset because technical terms are comparatively easy but having the right mindset is slightly difficult and is very important for Successful investment journey.
“I do believe something very magical can happen when you read a good book.”
Persevering is a very important characteristic that a successful investor has. Many times, people work hard to find the right stocks and when they find that the stock which they selected is falling down, they think that it’s their mistake and then they start to doubt themselves.
Understand one thing that stock prices fluctuate based on people’s emotions. One day good news comes, the stock will go high and the very next day if bad news comes up, it goes down.
Once you research well and find out a stock that is right fundamentally, stick to it no matter what happens. Quality stocks succeed in the long term in spite of wild short term fluctuations.
Keep going and don’t take losses negatively. Know that every loss has a lesson behind it. Mistakes will be a part of every investor’s career. You won’t be right 100% of the time.
You just have to find a few big winners to be a successful investor.
“You only fail when you stop trying.”
Investing is a lifelong process and not a one-time event. You should always strive to become better each day.
Learning about successful investment can come from a variety of sources like books, newspapers, movies, blogs, etc.
The stock market will be a pain for the “I know it all” people. These types of people stay rigid in their approaches and think that what has worked for them will keep working for them in the future.
You have to be flexible and keep learning, whether you profit or whether you face a loss. People who continuously learn and implement will be the ones who will be successful in the long term.
Warren Buffet reads and learns a lot continuously which is why he is this successful even after decades.
Be humble, accept that you can never know 100% about the stock market, and keep learning with experience.
“The more you learn, the more you earn.”
Investment in the stock market is very simple and thus a very boring process to get rich. People want to get rich quicker and thus quit from stock markets very soon.
You need to have a lot of patience if you want your investing career to be successful. Don’t invest based on tips and advice. Commit yourself to learn and be better than yesterday, understand yourself, make a plan, stick to it, and persevere.
It isn’t difficult to learn about the stock market but it is difficult to follow discipline.
Follow and understand these 9 steps and you will be successful in your investing career.