Not knowing where to begin or not having time to do so are common reasons (excuses) I hear among people who do not invest. Most people are aware that they have to manage their finances but often procrastinate doing so. With easy access to personal finance and investing resources nowadays, these excuses typically stem from laziness, lack of motivation, and of course, fear.
To tackle these problems that may be holding you back, I share what I did to help me get started and stay the course.
#1: Identify my purpose
Without knowing your purpose for investing, you will not be committed to it. Sure, people invest to create a passive income stream, grow their savings etc but what makes YOU want to invest?
For many retail investors out there, the ultimate end goal of investing is to achieve financial freedom – which is the same for me. I believe that investing will help me to grow my wealth quicker (albeit still an unhurried process) which would eventually give me the freedom to pursue my interests in life without any financial shackles tying me down.
Bearing this in mind, every decision I make thereon is guided by my purpose. As such, the very first thing you should do is to ask yourself why you are doing this. Identifying your purpose will motivate you and your lazy ass to do whatever it takes to achieve it.
#2: Assess my financial health
Back then, I thought I was ready to invest but my bank account told me otherwise. Assessing your financial health before you start investing helps you to see where you currently stand and also visualise where you want to be. Create an excel sheet and take stock of everything that you own and owe. Have you set aside sufficient rainy day funds and amassed a substantial amount that you can invest and potentially part with?
Try my net worth tracker template.
Knowing your net worth, available investment capital, and free cash flow would help to ensure that you are not investing money that you cannot afford to lose. I also found this to be a mini exercise for me to assess my risk profile before making any decisions I may not be comfortable with.
#3: Set tangible goals
After knowing where I stood financially, I was able to set tangible goals that would help me to achieve my ultimate purpose. These goals do not have to be complicated or ambitious, they just have to guide you there.
Think of it as picking flowers along the road to create your very own bouquet to enjoy when you reach your destination. It could be a simple savings goal of saving X% of your salary every month or accumulating $X in a year. Once you start reaching these goal posts, you will be encouraged and willing to take bigger steps to get you to your end goal sooner.
#4: Read, read, read!
Now that we have gotten laziness and lack of motivation out of the way, how do we tackle fear? By educating ourselves! I realised that my fear came mainly from a place of ignorance so I prepared by reading extensively.
Personal finance and investing resources are everywhere and when you are not sure where to start, JUST START. It doesn’t matter where because when you begin and find that there are things you do not know, you will naturally seek more information to fill that gap. With time, time you will slowly build up your investing knowledge and find an investing style that suits you.
Here are some resources.
It also helps to speak to experienced investors but be wary of everything you hear and learn to form your own judgment. It is an ongoing process and the most important thing is to just get started, keep amassing knowledge, and turn that knowledge into an actionable investment plan.
#5: Take action
Having armed myself with knowledge and readying myself with ammo, all I needed was to fire it. However, this is arguably the hardest step of all. If you still don’t know what to do, you probably didn’t read enough. Go back to the #4 and repeat.
By this point, you should have a good sense of your needs and risk tolerance to determine a suitable asset allocation to form your portfolio.
It will still be daunting to execute your investment plan and who knows how it will turn out but with time and experience along the way, you will gain more confidence and learn more about investing and your own investing psyche.
With this first-hand experience and a deeper understanding of your investing psyche, you will be able to modify and adapt an investment strategy that caters to your needs at whatever life stage you are at.
#6: Keep track of my progress
Whether you choose a passive investing approach or buy-and-hold strategy, it is also necessary to review and rebalance your portfolio periodically.
Monitoring your portfolio and rebalancing accordingly will help to ensure that it is going according to your investment plan. If there are holdings that are over or underperforming, be rational, find out why, and take corrective actions. It is easy to get complacent with those that are performing well and emotional (behavioural bias) with those that are not and still hang on to them (sunk cost fallacy).
In addition, I stay abreast of news related to the holdings in my portfolio and the global economic climate as these might affect the performance of the companies/industries I am are vested in.
Remember, your portfolio is like a bun cooking in the oven. You can’t just pop it in there and forget about it, you’ll have to check on it periodically to ensure you don’t end up with burnt bread! That being said, it could also be toxic to check on it daily lest your emotions get affected by minor intraday fluctuations.
Investing is difficult, but it’s definitely doable
Congrats for making it to the end of this post! I know it seems like plenty to do but I am not going to sugarcoat it: investing IS difficult, especially for the average retail investor. It requires hard work, cannot be rushed, and can be boring. But like anything else in life, with the right mindset and dedication, IT IS doable for common folks like you and me!