What is smart investing? 10 ways to do it – Forbes Advisor INDIA
Smart investing is an extension of the basics of investing and involves making the right investment choices that meet your specific needs to help you achieve your future financial goals. With a plethora of investment opportunities available today, it’s easy to choose a financial product that might not be right for you. It is therefore important to be a wise investor to plan your time and money well.
Smart investing helps you do three important things:
- Allows you to create an additional source of income
- Ensures long-term financial security
- Helps create enough wealth after retirement
Here are the top 10 ways to become a smart investor.
1. Start investing early
Investing as soon as you start making money can give you an edge. And even if you’ve come to that point in your life, it’s better late than never. Investing early can ensure that your money has enough time to grow into a substantial mass fund that will come in handy when needed or when you decide to retire.
2. Consistent investments
Investing once a year or sporadically is not enough. In order for your money to grow well, you need to invest a stipulated amount each month or quarter. Maintaining this financial discipline is essential if you want to achieve your financial goals. Systematic Investment Plans (SIPs) and automatic payment options are among the best options for observing this practice and ensuring that a set amount is deducted each month without fail.
3. Build a diverse portfolio
The old adage ânever put all your eggs in one basketâ still holds true. Diversifying your investments can help you manage risk and avoid financial loss in a volatile market. The economic instability caused by the Covid-19 pandemic is one of the best examples. Investors who had concentrated their money in one type of stock suffered heavy losses, unlike those who instead diversified their portfolios. Therefore, it is always advisable to diversify your investments into different asset classes.
4. Don’t underestimate the power of compound interest
Time is one of the greatest assets of an investor, and it is wise to use it for financial gain. When trying to build wealth, it’s not enough to invest, generate returns, and spend that money. Reinvesting the interest earned could generate larger sums of money, allowing you to build a strong financial portfolio over time.
5. Don’t look for the highest return
Successful investing doesn’t always mean looking for the highest possible returns in the shortest possible time. Smart investing tells us that stable, low-risk investments that are made over a long period of time develop the best.
6. Create an appetite for risk
While this may seem like a step for large companies, it is an important step for any financial investor. Risk is an inevitable facet of investing, however, the degree of risk one is willing to take can be measured. Keep risk tolerance in mind when setting your financial goals. Knowing the threshold for financial losses you can bear and your tolerance for turbulent markets is important and will help you secure your financial future.
7. Regularly monitor your investments
Investments involve a lot of care, which is why keeping track of your money is crucial. Create spreadsheets listing all your investments to track and analyze performance. Additionally, monthly expense reports can help improve savings strategies and understand how much cash is needed. All of these little disciplines, when combined, can form a robust financial management system to hold you high in the future.
8. Avoid the herd mentality
âEven the smart investor will probably need a lot of willpower not to follow the crowd,â says Benjamin Grahamin in his seminal book âThe Smart Investorâ. While making financial investments, it’s easy to follow what others are doing, but it might not always be the right course for you. Financial goals are extremely subjective, they depend on your tolerance for risk, your vision of wealth and the needs of your family. Everyone is different and there is no one-size-fits-all approach. Therefore, following this advice that everyone is following may not be the best choice.
9. Find out
Before making a foray into the stock market, it’s important to learn the basics. Understanding the inner workings of stock trading will help you make better financial decisions. As with other investments, stay on top of new financial products and read investing books written by industry experts. Even a general knowledge of financial news coupled with a disciplined habit of learning a new thing about investing every day will pay off in the long run.
10. Patience is a virtue
Again, we can take comfort in some proverbial knowledge: âGood things come to those who wait. This adage can also be applied to the financial world. Most investors are looking for immediate profits. However, such a rush can lead to significant financial losses. Instead, viewing investing as a long-term exercise is much more beneficial, as it takes time to generate healthy profits.
A smart investment also means having solid contingency plans in place. Having a healthy insurance plan and a trusted life insurance plan are important tools for ensuring financial security. When choosing a life insurance plan, go for longer age coverage as this is the safe bet. And when choosing health insurance, make sure it covers critical illnesses and offers family coverage.