Become an Investor in 2020 with These Easy Steps

By Cytonn Investments / Published December 27, 2019 | 10:18 am

Njaanuary, the month with four quarters is about to begin. Other than being broke, this is a month associated with setting resolutions for the New Year, most of which are tinged with the bitter memories of bad financial decisions of the yesteryear. They are meant to streamline our financial discipline in the coming year. One of the biggest content features in most resolution monologues is “I should save more this year”. If you want to take it a step further and make your money work for you, you should be saying, “I should invest more this year.” So, what do you consider when making an investment decision? Here are the key factors:

Understand your risk profile – Before engaging in any form of investment it is important that you have a deep understanding on your risk profile. How much risk are you able to tolerate? Also, understand the risks involved in the types of asset classes that that you intend to commit. This understanding will be key in choosing a diversification strategy, how to spread the risk and in some cases how to transfer (insure). Examples of low risk investments are money market funds and bank deposits; start-up business is a medium risk while shares and crypto currencies are high-risk options.

Know your liquidity position – This means the amount of funds you are willing to commit. Availability of funds, or lack thereof, is one of the inviting factors for procrastination – the biggest enemy to starting anything. It is important to do your homework on different asset classes or investment products. Get to understand the minimum investment that is required. While at it, you can also do a cost-benefit analysis of any underlying cost associated vis-a-vis the benefits accrued. This may include any subsequent tax implications.

Develop clear-cut goals – This is where the phrase “beginning with the end in mind” applies. What is your objective of investing? If you aim to keep your money safe, bank deposits and government securities are the best avenues. As for capital accumulation and high growth, riskier options like real estate and shares are the best bets. Also important is the need to have an investment horizon – the time you aim to stay in the investment. Correspondingly, your age is another factor to consider; youth usually have more risk tolerance, less responsibility and more disposable income.

Start as soon as possible and be disciplined to do it regularly – The thing about investments is that they need time and regular topping up in order to grow. Depending on the investment horizon of the vehicle you choose, it could be a few months (e.g. money market funds) or several years (e.g. real estate) before your investment matures. Either way, making regular deposits every so often means that you are increasing your capital and also developing the kind of discipline that leads to financial independence.

The new year is a great time to begin a new habit. However, if you want the idea of investing to be more than just another failed resolution, you now have the tools to help you follow through. Happy investing!