Becoming a wise investor is a process that requires discipline, patience and a good understanding of risk management. Ultimately, the goal of investment is to generate enough passive income to cater for your needs and help you achieve financial independence. This means that the end point for various investors is as different as their individual objectives and the kind of lifestyle they are striving to attain. However, some basic disciplines are common to every successful investor. We’ll take a look at three of them in this article.
1. Don’t rush to invest
One of the most certain ways to lose money is to invest in something you don’t understand. It’s common to see people learn of a boom in a particular area of business, and because they could afford it, they would rush in to invest. This is often disastrous. Don’t jump into any investment without being well-informed of how it works and the potential pitfalls. You must be knowledgeable about the business and well-prepared in every respect.
2. Manage risks proactively
Once you have equipped yourself with necessary knowledge of the investment that you intend to embark on, you must also learn how to cushion the impact should things go wrong. You cannot exclude the risk factor when managing money; you can only mitigate it. You have to deal with all sorts of risks such as market risk, the risk of inflation, fraud risk, counter-party risk and many others. Being a wise investor requires that you put measures in place to reduce risk and protect your investment.
3. Harness the power of compounding
Wise investors know how to make the power of compounding work for them early on in their investment pursuit. It’s a lot easier to greatly increase your net worth when you take advantage of compound interest at a very young age. When you operate by the law of compound interest, you make time work for you. If you save 6000naira every year for instance, at the end of 30years, you’ll end up with 299,599.22naira. Saving an additional 10,000naira every year for the next 30years at the same rate will yield 2,702,925 naira. One of the ways you can take advantage of this is to set up a trust fund for your children or grandchildren and see them enjoy a lifetime of compounding as they watch their money grow in their early years.