By Emmanuel Nkrumah
The Four Principles Of Smart Investing.
Successful investing involves making choices that meet your unique needs today and your financial goals for the future. Your personal circumstances will affect your decisions every step of the way.Before you make a decision to become an investor,think about it twice because it becomes part of your life and you cannot stop once you begin.
There are many people today who really want to be investors.But how to kick-start the whole process has become a bother. One thing you should know is that,investment is an art,an attitude,a way of life,thinking and actions about into the future.One does not necessarily need to know whether the present discounted value of the future income stream is positive or not before he/she invests.All investors do invest because they have hope in what they are investing in.This is why most investors started with what is called VALUE INVESTING..You might be wondering,what is Value Investing :
Value Investing is the process of buying investments at prices below their intrinsic value or discount prices. To come to a proper valuation, you must look at and understand the financial health and cash flow sustainability for a company. I would treat value investing in my next post because value investing has been one of the most rewarding investing methodologies
Warren Buffet is considered widely as one of the greatest investors of all time but if you were to ask him who he thinks is the greatest investor,he would mention no other but one man,Benjamin Graham.Graham was an investor and an investing mentor who is considered as the father .To be a great investor,I recommend you start with asset allocation since most of the billionaires in the world today started with that.
What is “asset allocation”?The mix of investments within your portfolio is also known as your portfolio’s asset allocation. A diversified portfolio typically holds a combination of savings, income and growth investments.
Whether you are saving for a business, home, retirement, or your child’s education, you want a plan that will help your money grow.start with asset allocation.
What should I think about before investing?
While risk sounds like something to avoid, there can be an upside – greater risk may offer the opportunity for greater rewards over the long-term.
To better understand yourself as an investor, consider your: risk tolerance, investment knowledge, investment objectives, gross annual income, approximate net worth and investment time horizons.
In this article,I would condense Graham?s investing principles and merge it with my own principles which I have titled:
The Four Tenets Of Smart Investing
Principle #1
Know yourself(know what kind of investor you are)
Graham advised investors to know their investment selves.well I say,we all have different investing goals and different time frames for achieving them. Some are short-term, like saving for a vacation or a car, while others are long-term, like starting a business retirement. In addition, every investor has a different comfort level with investment risk.You should know whether you are an ACTIVE(enterprising) or a PASSIVE(defensive) investor.
You only have two choices,the first is to make a commitment in time and have an inclination to become an investor who equates the quality amount of hands-on research with the expected return.If you have neither time nor the inclination to do quality research on your investments,then you can be tagged as a Passive investor.
Finding a balance between risk and reward that you’re comfortable with – and that’s appropriate for your investment time frame – is an important first step to successful investing.
Principle #2
Invest regularly
It’s generally much easier to come up with a smaller amount to invest on a monthly or weekly basis than to make a large, lump-sum contribution. A regular investment plan allows you to choose when and how often you make contributions – ensuring you make investing a priority. With a DATABANK investment packages(EPACK,MFUND,ARK FUND,BALANCED FUND),structures have been put in place to ensure their investors cultivate the habit of investing regularly.For instance with the EPACK and MFUND,investors are required to make monthly top-up of GHS5.00 and with the BALANCED AND ARK FUND it is GHS10.00.This instill an engine of investment discipline into investors
One would ask,How can I lower the average cost of investing?Investing smaller amounts in mutual funds over time – or “dollar-cost averaging” – can mean lower average costs than if you make infrequent purchases. For example, your money will buy more units of a mutual fund when prices are low; and fewer units when prices are high. Provided the fund gains in value over the long-term, you’ll profit from your purchases during short-term price declines.
Principle #3
Build a diversified portfolio
Spreading your assets across a wide range of investments is an effective way to reduce risk and increase potential returns over the long-term. Holding a mixture of different types of investments will help cushion your portfolio from downturns, as the value of some investments may go up while the value of others may go down.For example,you can buy treasury bills whilst investing in all the four investment packages from DATABANK.You can also invest in companies listed on the Ghana Stock Exchange.
Principle #4
Align your investments with your time horizons
The type of investments you choose will depend on whether you’re saving for long-term or short-term goals. For your long-term goals, you may want to consider long-term, growth-oriented investments. Your short-term goals call for investments that are more conservative, and more accessible. For example, if you’re investing to save for a down-payment on a home, you’ll want quick and easy access to your funds.
Short-term goals Long-term goals
What are they? These are objectives that are less than 5 years away, for which you’ll need a significant amount of money. For example:
Vacation
Start a business
These are objectives that are 5 or more years away. For example:
Extended travel
Children’s post-secondary education
Retirement
What to invest in: To save for the short-term, consider investments that are more conservative in nature and more easily accessible like EPACK,MFUND packages from Databankvisit www.databankgroup.com for more info on epack,mfund,ark fund and balanced fund To save for the long-term, you should consider a diversified portfolio which may include a growth component.
PROFILE OF EMMANUEL NKRUMAH…
A level 300 student of University of Ghana,pursuing Economics with Mathematics.He is also currently pursuing a course in Financial Modelling with CBA.He is the President of Databank Universal Economic School(DUES-LEGON),a DATABANK organization that trains students to be 21st Century investors.
