I've been investing for the past 5 years and there are certainly ups and downs in my investing journey. I would say that over the years, I've come to realize that investment is really an art. We can have the best investment knowledge but in the end still lose money from our investments. There is no guaranteed way of making money from our investments.
With that, here are some pointers for those who are just starting out investing or even if you've been investing for quite some time, I hope these reflection of mine will be beneficial for you too.
1. Focus on taking care of the downside, not on making money
Risk management is very important in investing. We do not want to put all our money into one stock or one investment thinking that its going to make us a lot of money. Even if you've researched about this company for many years, situation can still take a u-turn, catching us off guard.
In this era where information moves very fast, competition can come in very fast too and affect a company's profit entirely. Nokia and Siemens were two of the biggest mobile phone and telecoms giant 10 years ago but now they are defeated by competition from Apple and Samsung. Kodak was one of the biggest photographic film company many years ago but it has now been replaced by digital cameras and smart phone cameras.
In investing, we should think about how much we are willing to lose and if we lose this amount will we still be able to live our lives normally? It would be foolish to borrow money for investment as we could lose more than what we have in an instant. That to me is too much risk. I would only invest the money I am able to lose.
2. Investment is not a get rich quick scheme
Do not treat investing as some kind of scheme where you can get rich quick very fast. This happens mostly for people who do not have too much money now but want to have more money faster. The temptation of getting huge passive income and double or triple the money we have from investing is always there.
It is true that we can get passive income and capital gains from investing. But it certainly does not happen as fast as we thought it would be. It would be prudent for us to manage our expectations of the investment returns which we can get from investing. Is 10% p.a achievable in the long term or maybe just 5% p.a? I would say it is not easy to make more than 15% investment returns consistently for many years. You may be lucky for a few years but things may turn around.
3. Focus on accumulating more capital from other sources
Throughout the years, the capital I accumulated did not come from investment mostly. It came from the income I had from work and other active income. While we are investing and learning all we can to grow our money, do not forget to build up your skills and increase your active income as well. The more income you have, the easier and faster it is to save money provided you do not spend it all away.
A person who has accumulated 1 Million dollars can just invest with an investment return of 5% and he will get $50,000 a year. If we only had a capital of $50,000, 5% investment return is just $2500 which is not a lot.
Over the years, I have been trying to create multiple streams of income. Today, I have income from at least 4 different sources. It wasn't an easy task and requires a lot of time and effort. What I want to highlight is most of my income still does not come from investments alone. It comes from learning new skills and working hard to increase my active income. Passive income, although important, does not come easy and fast. My passive income has been increasing but its still not a significant amount yet.
In conclusion, investment really takes experience. Getting your hands dirty, falling and picking yourself up and going through some pain in order to learn it the hard way is part and parcel of the the process to invest better. Sometimes, it does require patience to ride through cycles and see your investment profit after a few years. Yes, sometimes it takes years to see results. Those who have the patience will get to eat the fruits at the end.
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