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The Art Of Investing

It takes time and isn’t a get rich quick scheme

The article was first published on SG Young Investment

Investing seems like the easy way where we can make our fortune or give us a hope for a better life. There are so many ways to invest and each one of us have different investment styles and strategies. There is never a one size fit all approach. To me, investment is more of an art than a science.

I’ve been investing for the past 5 years and there are certainly ups and downs in my investing journey. I would say that over the years, I’ve come to realize that investment is really an art. We can have the best investment knowledge but at the end, still lose money from our investments. There is no guaranteed way of making money from our investments.

that being said, here are some pointers for those who are just starting out in investing.

1. Focus on taking care of the downside, not on making money

Risk management is very important in investing. We do not want to put all our money into one stock or one investment thinking that it is going to make us a lot of money. Even if you’ve researched about this company for many years, situation can still take a u-turn, catching us off guard.

In this era where information moves quickly, competition can come in fast and affect a company’s profit margin. Nokia and Siemens were two of the biggest mobile phone and telecoms giant 10 years ago but now they are defeated by competition from Apple and Samsung. Kodak was one of the biggest photographic film company many years ago but it has now been replaced by digital cameras and smart phone cameras.

In investing, we should always think about how much we are willing to lose and how our lives will be affected if we lose this money. It would be foolish to borrow money for investment as we could lose more than what we have in an instant. That to me is too much risk. I would only invest money that I am able to lose.

2. Investment is not a get rich quick scheme

Do not treat investing as some kind of scheme where you can get rich fast. This happens mostly for people who do not have much money now but want to have money quickly. The temptation of getting passive income and to double or triple the money we have from investing is always present.

It is true that we can get passive income and capital gains from investing. But it certainly does not happen as fast as we hope for it to be. It would be prudent for us to manage the expectations of our investment returns that we can get from investing. Is 10% p.a achievable in the long term?  Or would 5% p.a be more realistic?

3. Focus on accumulating more capital from other sources

Throughout the years, the capital I accumulated did not come from investment. Rather, it mostly came from the income I had from work and other active income.  Do not forget to build up your skills and increase your active income as well. The more income you have, the easier and faster it is to save money provided you do not spend it all away.

A person who has accumulated 1 Million dollars can just invest with an investment return of 5% to get $50,000 a year. If we only had a capital of $50,000, a 5% investment return will give us $2500.

Over the years, I have been trying to create multiple streams of income. Today, I have income which is derived from at least 4 different sources. It wasn’t an easy task and it required a lot of time and effort. What I want to highlight is that most of my income still do not come from investments alone. It comes from learning new skills and working hard to increase my active income. Passive income, although important, does not come easy and fast. My passive income has been increasing but its still not a significant amount yet.

In conclusion, investment really takes experience. Getting your hands dirty, falling and picking yourself up and going through some pain in order to learn it the hard way is part and parcel of the the process to invest better. Sometimes, it does require patience to ride through cycles and to see your investment profit after a few years. Sometimes, this takes years.

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