6 simple steps for wiser investing

Money issues, especially for expenditures never seem to end, hence the growing need to device means of ensuring added revenue. Doing this sometimes entails investing scarce resources. So how to do it wisely to guarantee maximum yield is a challenge.

Here are six simple steps to investing wisely and to make more money gleaned from investors whose wisdom seems to shine the brightest.

1. Spend less money – invest the bulk of what you save and think long-term
In an increasingly have and have-not world there’s a danger in the simple suggestion to spend less money. There are many people in the modern-day world for whom spending less in not an option – they struggle to actually have enough to cover the essentials.
Many of us could spend less money. That doesn’t mean fully embracing an ascetic lifestyle but simply trimming back the unnecessary, avoiding waste, and not paying over the odds.
Spending less money doesn’t mean forgoing all fun. Life is too short not to enjoy yourself. Just make sure that your discretionary spending counts. Be judicious and sparing. Buying good stuff helps here.

2. Take matters out of your hands – never underestimate the power of regular monthly direct debit investing. It’s hard to find someone you can rely on, even yourself.
A regular monthly payment or direct debit out of your account tends to be a far more reliable investing companion that your best intentions to move the money yourself. The latter opens up a host of opportunities for forgetting, diverting the money elsewhere, or investing it in the wrong place.
The beauty of regular investing is something called pound-cost-averaging. Essentially, by sticking the same amount into the same decent investment over the long-term you benefit from the stock market’s rise and fall. When the market is down and things are cheap you get more for your money, when it goes back up you benefit.

3. Asset allocate –this is potentially the most important thing you’ll do
Asset allocation. There is possibly no phrase in mainstream investing more likely to send people to sleep than asset allocation.That’s unfortunate because this is really important.
At the simplest level it involves how much money you put into shares, bonds and cash. The idea is that spreading your investments across these main asset classes helps protect you when things do badly.
Shares deliver the best returns over time but are at the greatest risk of a big fall; bonds are traditionally less volatile but deliver lower long-term returns; cash is safe but low return.
Remember to diversify. Sticking all your wealth in one company’s shares, one type of bond and one bank account does not count as successful asset allocation.
To decide on how you should asset allocate you need to consider your attitude to risk, how much you can afford to lose and what period you have to invest over.

4. Invest in the broadest and cheapest tracker fund
The man judged to be the world’s greatest investor, Warren Buffett, says you should avoid trying to pick winners. Instead of trying to find a great share or fund, Buffett argued most people should opt for a simple low-cost index tracker in his annual letter to investors last year.
‘My money, I should add, is where my mouth is,’ he said, before describing the investing instructions left in his will for a trust for his wife.
‘My advice to the trustee could not be more simple: Put 10 per cent of the cash in short-term government bonds and 90 per cent in a very low-cost S&P 500 index fund.
In suggesting this Buffett echoed the words of his mentor Benjamin Graham. He advocated that most investors should take a passive approach and buy every company in the index.
This makes it impossible to beat the market, yet in reality most share-picking investors and the average professional fund manager will not beat the market either.

Read also: 9 tips to grow a successful business

5. Be more critical of what you choose to back, if you disagree with step number 4.
If I’m going to be entirely honest, the theory in point number 4 doesn’t sound like much fun.
It’s a great easy option and I fully understand why long-term it is probably the sensible course of action.
Yet, I am interested in investing and the world of funds, shares, bonds and markets. This means that I want to look into things that I think will do well and am willing to devote some time and effort to researching them. I am also willing to take on the chin any losses such an approach incurs.

If you are going to be an active investor though, it pays to be very critical of things you choose to back. The investing world thrives on hype and hot properties. The markets are a daily soap opera and there are plenty of characters in it trying to sell you a dream.

There are plenty of active investments made on gut feeling that pay off, but there are an awful lot of bad decisions driven by fear and greed that end up costing people a lot of money.
Don’t mistake luck for investing prowess.

At the very least evaluate investments carefully, question what people tell you and think about how things fit into your strategy and portfolio.

6. Read more books and considered thinking on investment
One of the pleasures of the internet is that it has put the greatest library the world has ever seen on our desk tops, on our sofas and in our pockets. It has not only never been easier to find interesting things to read online, but it has also never been easier to track down a book.

There are lots of very good books written about investing – more than most people will ever get close to reading. A substantial number of them are entertaining reads. Track down some and read them, absorb the contents and question them.
And it’s not just books. One of the interesting aspects of investing that has been drawn out even further by the internet age
is investors’ willingness to share ideas.

There’s a lot of get-rich quick nonsense out there and a lot of shameless self-promotion, but also some really interesting, considered and engaging blogs and websites.
It pays to read not just the opinions and thoughts of those you like, but also those that challenge your thinking.

RipplesNigeria …without borders, without fears

Join the conversation

Opinions

Support Ripples Nigeria, hold up solutions journalism

Balanced, fearless journalism driven by data comes at huge financial costs.

As a media platform, we hold leadership accountable and will not trade the right to press freedom and free speech for a piece of cake.

If you like what we do, and are ready to uphold solutions journalism, kindly donate to the Ripples Nigeria cause.

Your support would help to ensure that citizens and institutions continue to have free access to credible and reliable information for societal development.

Donate Now