If you have ever passed through Bukit Merah, you have probably noticed the 15-story vending machine filled to the brim with luxury cars. Porsches, Ferraris and Lamborghinis are all sold by Autobahn Motors here. And while they may be wonderful to look at, to even consider owning one of these requires money, and lots of it. But don’t you fret just yet; by looking to the world’s richest, each one of us may still have a trick or two to learn.
Today’s wealthiest often share a very similar outlook on life; let your money work for you, and have patience. Passive savings, that are left on their own in a savings account, have so much more potential than you could ever imagine; a potential that can be capitalized upon through investments. Said investments come in several forms; including stocks, bonds, shares, and property; each of which has their own pros and cons. Whichever one you choose, be sure to remember that to achieve the best aggregate growth, a focus on long-term investments is required. In this article, we will focus on how to start the ball rolling, more specifically through savings and equity investments.
1. Learn to save
Forego the notion of ‘go big or go home’. Saving as little as $50 a month allows you to build a capital pool decent enough to start investing by the end of the year, and most importantly, investing in your future. And by saving, we do not mean what you are already putting aside for that trip to the Maldives, or for that new Mercedes-Benz. Instead, what we are referring to, are the savings intended exclusively for investing. As Warren Buffet once said, “It’s pretty easy to get well-to-do slowly. But it’s not easy to get rich quick.” Be frugal. Be opportunistic. And most importantly, be patient.
2. Learn how to read financial statements
Being able to read and understand a financial statement is like learning how to monitor a person’s vital signs. These vital signs hold the key to their health status, just as financial statements of a company help in the diagnosis of their financial health. It is through this understanding of financial statements that you may become a wiser investor.
3. Build a network
When it comes to your finances, knowledge is profit, not power. That is why it is pertinent that you connect with finance experts, family, and even friends. Experts can give you insight into future industry movements, while family and friends hold past experiences and lessons that can guide you in deciding what to do and what not to do.
4. Indexed funds
Research, alongside the opinions of Warren Buffet et. al, has shown that in the long term, bypassing management fees allows for indexed funds to outperform managed funds. By building your portfolio around long-term goals, this too helps ensure a strong and sturdy foundation.
However, these funds are by no means perfect. They too are susceptible to market crashes, so our advice in times of perceived crisis is simply to wait it out. Investments require a willingness to have discipline and patience, and by giving your fund the time and space to persevere, you may soon find yourself reaping returns you could never have imagined. The long-term nature of these funds allows for volatility to subside over time.
In contrast, the latest IPO share purchases, while seeming to promise exceptional returns, in the short-run, they often hold a much greater potential for loss in the long-run, due to a lack of strong fundamentals.
5. When stocks go bad, buy more, don’t sell
Jumping ship deprives you of the chance to bounce back. With that being said, do not buy the very first stock to crop up, instead, make sure that the industry you invest in is one that is dependable and long-term. These stocks have the ability to persevere, and when it comes to investing, sometimes a leap of faith is necessary.
6. Understand the industry. Like, really understand it
Do not invest in industries you do not know the ins-and-outs of. So before you invest, make sure to really understand the industry. Despite the apparent wealth in industries such as gold, or the Bitcoin, there is a reason why Buffet avoids them. He does not believe that he understands either industry well enough to invest. Investing is not gambling, it is based on smart decisions. By expanding your knowledge of what is happening in the world, you will make your investment decisions much easier.
7. Watch your appetite for risk
Risk tolerance is something each one of us must consider when setting up a portfolio. The more aggressive the investment, the higher the potential returns. But if you can’t withstand the inconsistency of the most aggressive of investments, then perhaps sticks to those that are less aggressive will give you some peace in mind. Just remember that this may also mean that you goal and timeframe may need a re-adjustment.
The world of investments can be a daunting thing. But if you stay informed, and take small steps, all while keeping the bigger picture in mind, you too can have the confidence to invest wisely.