Investing is a key driver in building wealth, however, becoming a good investor can be quite daunting. Here are 7 tips to improve your investment decisions.
1. Education: Becoming good at anything often involves education. Educating yourself in the investment sector that you are interested in is crucial to improving your investment decisions. Enlist the guidance of a successful investor (mentor) in your desired sector and begin your investment journey from there. Do not let the desire to educate yourself cripple you from the need to take action. Education involves doing.
2. Describe your investment philosophy: Being able to articulate your decisions is usually a good indicator that you thoroughly understand your investment philosophy. It is advisable to either put your investment philosophy in writing or/and sharing it with a few respected investors as well to critic it. Sharing your ideas often result in improving the ideas and also increasing your knowledge.
3. Ensure you are investing and not speculating: In a previous article from 2016, I discussed the difference between investing and speculating, see link Are You An Investor Or A Gambler? | Victor Lofinmakin A key aspect of investing is the ability to calculate your expected rate or return. Oftentimes, the actual rate of return will differ from the expected but if you are solely hoping the value of your investment will go up, then it is likely that you are speculating.
4. Diversification: There are two schools of thought on this. One suggests that it’s not a good idea to put all your eggs in one basket, and advocates for diversification. The other suggests that you should put all your eggs in one basket and watch it closely. This philosophy advocates that diversification causes distraction and essentially worsens your investments. We believe the right answer lie somewhere in the middle. Since we don’t have a crystal ball, it is advisable to diversify to reduce risk, however, not too diversified that it causes us to lose focus.
5. Explore Leverage: Leverage could be a two-edged sword. It brings risks to your investment decisions but when used wisely and judiciously, it can help increase your rate of return, diversification, and exposure. Leverage can be in the form of debt or equity or a combination of both.
6. Learn valuation: The price you pay for an investment is extremely important to the return you achieve from the investment. Leaning how to value the investment vehicle that you pick is imperative. Invest in resources and education on determining the valuation of your investment.
7. Reduce your taxes, interest, expenses and fees: According to the book, Money Master the Game: The single largest bite that comes out of your nest egg is taxes. Between taxes, interest, expenses and fees, we lose over 80% of our returns. Investing in a good tax strategy, reducing interest you pay on consumption, reducing the fees and expenses you pay on your investments will lead to a significant increase in your investment portfolio.
For other simple tips on attaining success, get a copy of my new book “Success Made Simple” on Amazon using this short link http://amzn.to/2dpwvDY and go to my website www.victorlofinmakin.com/new-blog
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