WHAT TO CONSIDER BEFORE MAKING AN INVESTMENT
“When you work on something that only has the capacity to make you 5 dollars, it does not matter how much harder you work – the most you will make is 5 dollars.”
~ Idowu Koyenikan
Author of “Wealth for All”
Most of us are accustomed to the same system since the beginning of time, wholly watching our salaries going in and out of our accounts, sometimes even quicker than our knowledge. What we make is usually a fixed amount, and is traditionally eaten by external factors like living cost, traveling cost, education cost, and health coverage.Making our money work for us is an aspect that we are yet to personally identify with on an everyday basis, but it is vital to keep in mind that there are specific points to be taken note of, before taking the first steps towards an investment. Realizing that real estate isn’t for the 1%.With real estate being the largest asset class in the world, we have often heard that this classification is only suitable for 1% of the wealthy population. This is mostly because of the lack of knowledge that we have on an individual scale and a result of following the majority in terms of what they do to earn a decent living. It is also a part of many of our lives, maybe in the form of a home or a form of income that can generate our life savings.Understanding that it wasn’t easy for the 1% to build their wealth, is also crucial. Time, effort, diligence and perseverance are required to build a financial portfolio which is varied in nature and minimally prone to risks. There is no such thing as a universal short cut to becoming a part of the rich. Creating a personal financial protocolEvery individual in a community, has different financial and personal circumstances. This strongly implies that following someone else’s roadmap to economic success might not suit yours or your family’s needs. Analyze your personal situation and create a plan accordingly to accommodate your lifestyle and remain diligent towards ticking off your financial goals off the plan. A protocol is a set of rules that you would have to follow with utmost commitment, without it, the path to financial growth would be much more difficult. Evaluation of your personal comfort zone and risk should also be a part of your financial roadmap, as this will help you identify what kind of investments you will be making in the long run. Create a circle of competence – an outline of what you think will be the right investment for you, and start from there. The circle would create a barrier of safety for you, since you would repeatedly looking for an investment within the same circle or the same categories. Over a period of time, you could grow or update this circle as you earn from your investments in accordance to your own convenience. Even a well-known investor such as Warren Buffett has his own circle of competence, by which he assesses his investments. Avoid speculationFrom Quora questions, we found that the most commonly asked question about real estate investment is, “Is this a good location to invest?” Warren Buffett mentions that rather than looking into location, the investor should look at the earnings. If you focus on the price changes of the asset that you have purchased, then you are speculating. He further conveys that he himself, has not been successful at speculation and that he is skeptical about anyone who claims that they have made successful speculation in their lives. Acknowledge the capability of rebalancingLet’s envision that you have successfully come up with your long term financial plan – that you’re eagerly sticking to it and making regular investments, what comes next? Managing your investments and monitoring the decisions that you have made constantly, is remarkably essential to sustain everything that you have done so far. Rebalancing your portfolio and making sure that you have been investing diversely is suggested because it allows you to spread out the risk in a thorough manner. It is what will provide you with the stability that you had been hoping for when you first started investing. This way, if one of your investments is not doing well, it will not necessarily matter since you already have multiple other investments that you would be earning from. Buy low, sell high – but keep in mind that you should hold for the long term to maximize returns.
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