Know Your Money

Investing is an essential part in achieving financial freedom. When the money sits idling, it loses value. It is a must to put to work somewhere. In that vain, everybody has to make investing decisions in some shape or form.

Choosing to buy something now vs later is also, in one way, an investing decision. Broadly, any decision involving money is an investing decision. So, it is actually an everyday decision. Therefore, it becomes important to understand how money works to take better investing decisions. 

The value of money is always a factor of the environment it is being used in. So in order to understand money, we have to have an grasp of the market place in general. Thus, investing is not only about us, but also about the others around us. If others have a fancy for X, the value of X will go up and thus it makes sense to invest in X. 

The other factors while making an investing decision may include availability of money/product, value of underlying product vs other products.

Yet, having said all this, investing is a very personal decision as it involves one's personal money. Hence, there can be no right or wrong decision when it comes to investing. 

Every strategy has its own risks and benefits. One has to choose an appropriate investing strategy that suits one's personality or risk appetite. So, while there is no right or wrong in investing decisions, common ill-attributes in life like greed, fear, over-confidence etc end up being the difference between the success or failure in investing. 

It is my experience that one needs discipline to succeed in investing more than skill. That makes investing a level-playing field for all. A highly educated financial expert may not earn the returns you would (in percentage terms) while investing if he doesn't follow the required discipline.

Patience and conviction are the key attributes in investing. These two help in achieving the benefits of compounding on a right investment decision. 

Given this broad outlook, I have devised my 10-point investment framework as follows:

1. Know your needs, wants and personality (risk-appetite)

2. Spread your risk (asset allocation/diversification)

3. Only invest in what you know/understand

4. Invest regularly/systematically 

5. Buy at a reasonable price

6. Understand asset cycles and invest suitably

7. Invest in good historical performance with good future growth prospects

8. Sell only when you need money

9. Sell if underlying asset is not value generating

10. Hold irrespective of the price if asset is good

This is applicable across all types of investments - land, gold, financial assets, rare collections etc. 

I felt a generic write-up on investing would be useful to readers, as everyone is unique in deciding about their money and may not find it pertinent if it is discussed with specifics. As discussed here, it is essential for everyone to learn about money and on how to put it to best use; I hope this post helped a bit in that regard.

Vignesh Nagappan