Principle 1. Set goals.
Yes, one of the main principles in investing is to set goals and the goal should not sound like “make more money. Although the goal itself is not a bad one.
The goal should be specific and measurable. For example, it is very important what currency your investment goal is measured in. If it is, for example, a big trip abroad, then it makes sense to save and invest in currency. If the purchase is planned in a few years, you will need to choose the appropriate investments. You should understand the exact amount of your purchases so that you know how long you will be able to accumulate the necessary amount and choose the right investment instruments.
Setting a goal in investing is one important principle to start with. Sometimes our prospective students just find themselves starting to invest and then quitting just because they didn’t spell out their investing goals correctly.
Be sure to check your goals for reality, because if you set a goal to grow your income a hundredfold in six months, there’s hardly any chance of meeting that goal.
Principle 2. Know Your Investor Profile.
Knowing your investor profile is a principle you need to apply before you start investing. What is an investor profile, or risk profile in other words. It’s your risk appetite. Everyone is different, some people don’t even buy the lottery because they cannot risk even a small amount of money, while others can easily withstand plus or minus $10,000 deposit jumps.
Personally, I, Rustam, co-founder of fingram, belong to the second type of investor. For me, the risk is a matter of deliberate and cold calculations. For me you do not notice what happens to my deposit or trading terminal, whether my income goes up or down. For me investing is not a risk, it is a conscious approach, calculation and confidence in my abilities.
But if you get cold feet at the thought of investing your money in some financial instruments other than a deposit, it does not mean that the way to investing is closed for you. It’s just that each risk profile has its own investment option and its own financial instruments. For those who are not ready for risk, low-risk and highly liquid financial instruments like government bonds are chosen, for those for whom risk is a conscious approach and calculation, as for me, more high-risk financial instruments are possible.
Principle 3: Prescribe an investment plan.
Yes, any business needs a plan. So it is in finance. Especially in personal finance. In the first point, we talked about investing goals. Once you’ve set your goals, you must proceed with your plan. In fact, an investment plan is the path you have to take in order to arrive at your financial goals. This includes the choice of instruments, which is discussed just below, the investor profile, and the calculation of the amount of investment you intend to make.
You can keep your whole life in your head, but you should definitely keep your personal finances on paper or in a system. The steps of an investment plan are the stepping stones to your financial goals. In an investment plan, you can spell out dates or enter periods right away. Also, your investment plan should include specific amounts you plan to invest in your investments, as well as a breakdown of low-risk, high-risk, and medium-risk investments. Also, your plan should include both steps on goals you will accomplish in a year and those you will need in 20-30-50 years (children’s schooling, moving into a bigger house, retirement).
How to write an investment plan – you have to apply the decomposition method. You have to decompose the goal from the opposite. For example, you plan to buy an apartment, which costs 5 million rubles. You have to go from that 5 million to the term, the steps, the specific amount you have to earn on investment and on basic income, to come to that 5 million.
Take your investment plan as seriously as possible. Discuss it with your spouse, have periodic “family councils” about it. Working as a team on something as complicated as an investment is much more reliable, and making decisions together will only bring you closer together.
Principle 4. Choose the right tools at the start.
Of course, you can immediately buy stocks or even bitcoins, but this approach will lead to what. Most likely to losses. You need to start with basic investments, and it is not necessarily a deposit in a bank.
To start with, we at our school always advise choosing government bonds. These are more reliable than stocks or corporate bonds, but also more profitable than a regular deposit. Government bonds in Russia are otherwise known as Federal Loan Bonds, or OFZ. Next in reliability are corporate bonds, especially those of state corporations.
Why do we think it is safe to invest in Russia? Well, first of all, study the site of the World Gold Council (international source of gold information and gold regulation body) – Russia’s gold reserves are fine, and they are only growing. And that means state defaults, including failure to pay government bonds, are extremely low.
To continue, you will have to learn how to use technical and fundamental analysis. Actually, fundamental analysis is simpler and we will talk more about them in a future article. Fundamental analysis, in simple terms, is the evaluation of a company based on its news and its reports. If a company is planning to cut five thousand employees in order to reduce its payouts, we don’t think it is worth investing in such a company. But this is a simple example to make it clear what we are talking about.
Principle 5: Have a financial safety cushion.
Having a safety cushion is the key principle of investing. Without a safety cushion, it’s impossible to talk about any investment. You simply can’t invest if you haven’t put some money aside. You’ll worry about investing the last of your money, or you’ll just quietly pull money out of your investment portfolio, especially if you haven’t provided for yourself the “safety net” we’ve already written about.
How many stories we hear and see about distressed investors who invest their last money in some financial instruments that are actually fraudulent. This approach to personal finance is only possible because of a lack of financial literacy. But it’s also because the last of your money is being invested.
Investments are not some big score which you get once in a lifetime and then you live happily ever after. Maybe I’m going to upset some people now, but investing is also a job. Don’t believe the pretty pictures, at first you have to understand and work at investing, especially if you start from scratch. And only then, when the capital has already started working for you, and not by itself, but with your involvement, you can calmly breathe out and realize that all your efforts were not in vain.
But once again – you need to work very hard for that now. I started my journey to investing about 10 years ago, and I have never once regretted my time or money invested in my knowledge, everything has paid off and will continue to pay off.