Smart Investing in 10 Steps – How to Become a Successful Investor

A successful investment strategy is not the prerogative of the Ivy League management grads – you don’t need to be one to become a successful investor. It does not need a great deal of financial acumen either. As with most things in life, common sense is all that it takes to become a successful investor, and grow rich and wealthy. As Shiv Khera would say – “Winners don’t do different things, they just do things differently”.

To become a winning investor, therefore, you don’t need a degree in accounting or finance, or read the pink papers, or time the markets. A sensible, common sense approach can definitely grow your investments, and raise you financial returns heads and shoulders above the mundane.

So what exactly is the common sense approach to investment?

In the following paragraphs, I have enumerated the top 10 steps in successful investing, which is basically a synopsis of the most basic and sensible advice that everyone knows, yet a few follow. When you read these 10 steps, you will discover they are the simplest and the most obvious, yet they are very effective. Isn’t it surprising – the winning formula is always right under our noses, but we seldom see it – instead preferring the dazzle and shine of expensive financial advice, which often comes prejudiced and with a vested interest.

Read, and benefit! Here goes -

Spend Less than what you Earn

Investment cannot happen till you have a investible surplus – and THAT will not happen till you spend less - considerably less – than what you earn. At the end of every month, you should have surplus cash in your hands (or bank account), only then can you begin to think of investing the money.

Now, in hard times like these, the surplus may not be a big sum, what you are able to save every month may differ widely from what I am able to save. The quantum of surplus is not a very important matter – what is important that you MUST save something regularly to invest. Even a small sum, of say, $ 200 every month is OK.

Plan

"If you fail to plan, you plan to fail".

Have a plan – even the most basic would do. Better still, put it in writing. Put tangible, achievable numbers and achievements as your goals. Be as specific as possible – for example, “I want to have my own house by 2020” is much more specific than “I would like to own a house someday”. Similarly, “I want to have a retirement fund corpus of $ 100,000 when I retire at age 45” is way better than just saying “I want to retire in comfort”.

Once you have decided your goals, you also have to plan on the best way that you will achieve those objectives. In investing, this will means selecting the appropriate instruments of investment. (This is the matter of another hub).

Be Realistic

Planning is basically imagining where you want to be, and then finding the best path to go there. When planning your investment, you have to be realistic. Be very ruthless in analyzing your present status, and your future outlook. Know your present income, and how much you will be able to grow it into the foreseeable future. Don’t count on your winning that lottery – it may not happen.

Successful investing involves an accurate realization of your present, and a reasonable estimate of your future. To do both in the correct way – you have to be realistic.

Think Long Term

Successful investment is almost always most fruitful over a long term perspective, so always think of the long term. Do not indulge in constant buying and selling on the slightest provocation – give your instruments the time to mature. Once you have chosen your funds and instruments, give them a reasonable time to perform – don’t abandon them midway just because they performed badly this quarter. Much of the returns depend on the magic of compounding – and that, my friend, takes time!

Have a little patience, but do not forget step number four, which is…

Be Flexible

Thinking long term does not mean that you have to be the last man standing on a burning ship – never fall in love with your investments! If you have a reasonably certain knowledge that one of your investments is going to decline irretrievably, run like hell! Get out while the going is still good – even if the going is not good, get out anyway. There is no use crying over spilt milk. There are a slew of good investment opportunities out there – get a different one.

And, always take care to…

Diversify

“Don’t keep all your eggs in one basket” – my grandpa used to tell me – and I suspect he heard from his grandfather! Yes, it is wisdom that is probably thousands of years old, yet every investor keeps forgetting it – it applies to investing as well. Always, repeat, ALWAYS have a well diversified portfolio. This way, if one (or more) of your investments is hit by the vagaries of modern economics and cyclical variations, others will prevent you from going under completely. And yes, there IS a thing called “over-diversification”, which is probably as bad as “no diversification. Beware of both.

Focused, Independent Thinking

Probably the only thing I ever read in the pink paper is the Dilbert strip, and sometimes the editorial features - I don’t understand the analytical pieces anyway. And I rarely watch the business channels on TV. This way, I am protected from what is the latest fad in the market, and from the rumors and hearsays.

What I mean to say is this – once you have a investment plan of action, don’t heed the market rumors and fads – or try to time the markets. Think independently – if your own analysis says that it is OK to stick with an investment, don’t get swayed by what your colleague tipped you in the elevator.

Be Consistent

Successful investing, as stressed earlier, is a long term strategy. It also implies that you should be extremely consistent – in saving and investing. You cannot save and invest for three months, and then forget it for the next five. Well, it is better than no investing at all, yet, don’t expect handsome returns from this “on and off” approach.

KISS

Oh yes – go ahead and KISS!

OK – KISS stands for Keep It Simple, Stupid! To achieve great returns on your investments, you don’t really need to invest in fancy sounding instruments that you don’t understand – just stick with what you understand and are comfortable with. If you have no idea of what ‘commodities futures’ is, please resist the advice from your cousin to invest in them.

Start TODAY!

“The journey of a thousand miles begins with a single step”.

The best of investments plans requires implementation to show results and achieve success. Without implementation – positive action – a plan will remain just that – a plan, a useless piece of paper. All your investment strategy is of no use if it stays inside your head.

Get your feet wet – start TODAY!

Before I wrap up, let me stress that these ten steps to successful investing don’t reside in watertight compartments – they are not mutually exclusive. You should read all of them in totality, and fox them all together in a “big picture”. For example, being consistent with your investments does not mean that you give up on flexibility. Or, Keeping yourself aloof from market does not mean that you do not monitor your investments to see whether your investment objectives are met.

To The Reader – Did you find this article useful? If yes, then please rate it up – I will really appreciate it! If you think that your friends can also benefit from this article, please share it on email, or with your Twitter followers, or with your friends on Facebook. Help me spread the word!

Disclaimer – The information presented in this article is of a general and informative nature – and is not intended for investment decisions and analysis. Investors are advised to be cautious and exercise due diligence before making any investment decisions.