Anyone who has set out to achieve something has obviously been faced with some level of difficulty at some point in their quest.Success is therefore determined by how well they navigate these difficulties.Of course the absence of clear strategies on how to deal with the difficulties would be what leads one directly to encounter failure.This points out preparation is always important.
The world of investing has it’s fair share of both success and failures,but in this context failure is be defined by the inability of an investor to meet their financial goals,especially those tied to wealth creation,mostly leading to bearing of huge losses.So what separates a good investor from one who is bound for failure?
Financial goals
One of the most important questions anyone interested in investing should ask themselves is ‘What am I looking to achieve?’The best way to go about this is by drafting up a set of financial goals then developing your investment plan around them.A financial goal is basically an objective that is based upon Money.A good example would be to saving up for your child’s education.The good thing about financial goals is that they give you a clear picture of where you are,where you want to be and what it would take you to get there.
For instance,your financial goal would be to save up ksh 300,000 for your child’s high school education in ten years yet in that period you can only raise half of that.A good investment with good returns would then be what helps you to raise the other half.Since we’ve now managed to draw the relationship between financial goals and how they should impact your investing,the next obvious step would be shopping around for an investment opportunity that can help you achieve that step.
Researching investments
When it comes to investing an investor has two options,to invest blindly and learn the hard way or invest from a point of understanding and gain.As Benjamin Franklin once put it an investment in knowledge pays the best interest.Behavioral finance actually lists a few characteristics that affect investors who fail to research their investments beforehand amongst them being speculation driven by herd behaviour.
So how does one avoid the speculation trap? Simple,research!The good thing about research is that it helps you understand what exactly you are getting into.It gives you a clear picture of how economic factors can affect your investment,what other risks are involved with taking up such an investment,the potential returns of the investment and whether it would help you achieve your financial goals.There are a lot of options to consider for getting information for your research.The idea is to get as thorough as you can.
A good place to start would be your local broker in case you’re looking to invest in the stock market,reading dailies touching on business can give great leads on most recent investment opportunities that match your financial goals or a great online resource like this one here.
Overall growth over immediate returns
The long term approach to investing is what separates people who grow a considerable amount of wealth from their investments from those who end up disappointed,forming the basis why research is emphasized on. Picture this, you are approached with two investments opportunities.One has a potential return of 1O% on the initial investment over two years whereas the second one has a potential return of 5% each year on the initial investment for over ten years.Which one would you rather put your money on?
When approached by such a scenario a good investor would go for the investment that grows his money over time by a great percentage despite the small earnings other than the one that promises a higher earning over a short period but provides a small overall growth on the investment in comparison.Always go for growth when investing other than immediate gain but most importantly,the option that matches your financial goals.
Investing is like a journey.To get to the destination you need to understand your starting point and the path that gets you there.Understanding your starting point begins by writing down financial goals and the path you take to succeed is determined by doing research on what suits you.So are you ready to succeed as an investor?