What are the basics of investing?

Before you take your first step, you have to start to THINK like an investor.
For that, one needs to contemplate and understand what “investing” is. This may sound rudimentary initially. But the fact is that a LOT of people – including some very smart ones who are quite successful in their chosen fields – have misconceptions about this term.

Why do we say that?

Many people out there confuse investing with speculation or trading or even betting. The latter three terms are actually a form of gambling, where luck plays a rather large role in your success and failure.
Investing on the other hand is when we have done our homework – our research – and we KNOW for certain that we ARE going to profit, sooner or later
It is the strategy which when deployed sufficient number of times, with patience and prudence, GUARANTEES our victory.
This is true in the financial markets, or when buying physical assets, and in every other aspect of life itself.
We invest our precious time, our hard-earned money, our thoughts and our emotions into all kinds of things, people, and endeavours every single day.
What an investor does first is to sit back and see things as such.
This is not a very complicated habit, nor does it take great mental prowess.
All it does take is awareness of how the world works, and what we truly have at our disposal.For that, we best start by learning and digesting HISTORY. The causes and effects of the past teach us almost everything we need to know to success today and in the future.

Once we have begun on the journey of self-development above, we can start evaluating our monetary investing needs and preferences.
For that, we start with a hard look at what we already have at our disposal – our financial assets, liabilities, income, expenses (present and future), dependants and contingencies.

Collating and organising the above is already quite a major milestone for many novice investors. As the wise say, “what we can measure, we can manage”.
Without this 20/20 clarity, we risk starting on quite the wrong footing.
Next, we have to look at our needs, concerns, and preferences. This includes our near and future goals, and what we can afford to sacrifice for them – listed in order of priority. For most of us, it is having a well-funded retirement from the age of 55 or 60 years, all the way till we depart. It is better to plan for more years rather than less. That means we consider as much as 35 years in retirement.

The term “retirement“, in this context, has a special definition: It is the state of life during which we do not NEED to work for money any more. That means, of course, we can continue to do what we enjoy, and earn a living from it well into our 80s. But we don’t rely on it, instead we consider it a bonus.

Then, we go through a quick questionnaire to ascertain what type of investor you are – your risk profile, which is linked to your tolerance for volatility of market prices of the assets you own.
We must ensure that whatever you choose to invest, is money that you do NOT foreseeably require in hand in the next few years. This is best achieved by setting aside cash for emergencies. We recommend 6 to 12 months of your living expenses for this.

Lastly, to conclude this phase of getting started right, we must ensure that what you choose to deploy in the markets is something that you can easily afford. Given the steps above, awareness of affordability arises naturally.