Words Dr Tanushka Melwani Mansukhani | Photograph Bura K
“Show me the money” became popular in the movie Jerry Maguire back in 1996. A football player was pushing his agent to negotiate a better contract by saying repeatedly, “Show me the money!” Today, people use the phrase when they want evidence that something is valuable or worth investing in. That’s the catchphrase that we need to keep in mind when we are investing.
Let us get to it!
What is investing?
When you decide to invest your money, you are choosing to put it into something to receive a financial return down the line. In most cases, the plan is for as little involvement on your part once you’ve invested the money. Although most people associate investing in the stock market, there are many other ways to invest. For example, you could invest in real estate, your own business, a fixed deposit, or on yourself. No matter what you choose to invest in, the goal remains the same, “show me the money”.
Why invest?
Saving money is an important place to start building a better and financially free future. However, the value of your savings is diminished each day by the powers of inflation. Although your savings account might have the same balance ten years from now, not only will that money not have the same purchasing power that it has today, you could have more responsibilities or even a lower earning capacity as you grow older.
With investing, you can grow your money over time and keep the powers of inflation at bay.
When should you start investing?
Successful investing strategies typically involve a long-term timeline. With that, the best time to start investing is as soon as possible. The sooner you can start investing, the more time you’ll have to allow your investments to grow. Generally, these investments are a nest egg to fund your biggest ticket item- retirement. So, it is a good idea to start as soon as you can. You’ll want to give your investments a long timeline to build your wealth.
But first, take a selfie – no, not the photo kind, but more of a snapshot of your current financial health. If you have any debt that is draining your resources each month, then you should focus on paying that down first. Think credit card debt.
Second, consider building an emergency fund. Living paycheck to paycheck is never fun. Having access to this fund can allow you to enjoy more financial breathing room in your life.
Before you start investing, have a good look at that selfie. This will be a good jumping point to kick-start those investments!
INVESTMENT 101
* It’s just a habit
Look at investing as a muscle, that needs to be developed with practice and discipline. You don’t need a lot of money to start investing. In some cases, you only need a few dollars to get started. Of course, you might have a goal of increasing your investments over the long term. Just don’t let limited resources stop you from building your long-term wealth.
* The power of compounding
Historically, the stock market has provided returns averaging 6-7% with inflation factored in. Those earnings can dramatically increase your savings over time. The power of compounding can add to your nest egg. If you choose to reinvest your earnings over many years, you’ll benefit from the compounding effect. Compounding is a process that grows your money over time by reinvesting your investment earning.
* Make it Count
If you are just starting your journey of building wealth, then investing can help you reach those long-term goals faster. Instead of trading your time for money to build wealth, you can have your money work for you. When your money starts to earn money through your investments, you won’t be completely dependent on your day job or your savings.
* What is Robo-Advisor
A Robo-advisor is essentially a virtual financial advisor. With the use of algorithms and technologies, it eliminates the need for a human financial advisor. It provides automated financial management services and tailors your investment recommendations based on your financial goals. The benefit of using a Robo-advisor is that the fees are typically lower than banks even though you are getting customized portfolio recommendations. Most Robo-advisory firms offer low minimum investment requirements and take care of portfolio rebalancing automatically. If you are interested in trying a Robo-advisor, then check out Acorns or Betterment.
* Getting set-up
Find a brokerage account that works for you- There are many investment services available on the market today. Each offers different services and charges different fees. Find one that minimizes your brokerage fees for your investment strategy. Create a mock account and mock trade till you get the hang of it and are comfortable with trading for real. Check out, Interactive brokers.
* Employer benefits
Look for employer-sponsored/tax saving investment accounts- If you work for a large company, then you likely have access to some employer-sponsored investment accounts. In general, these accounts are aimed at saving for your retirement in a tax-advantaged way.
* Low-risk low gain
Fixed Deposits (FD)- These certificates of deposit, are a great place to grow your money if you have a low-risk tolerance. Although you will likely miss out on bigger returns through the stock market, you won’t have to worry about any volatility along the way.
* Real estate can be real good
Property can make for a great long-term investment and add security to your financial future. It is important to research thoroughly every aspect of the property and developer before investing, one of the main ones being location, location, location!
* All that glitters Is gold
Gold, Jewellery, Art- While gold can be converted to cash relatively easily, jewellery and Art are subjective in value. Depending on your investment goals you could include these as part of your diversified investment portfolio.
* The power of YOU
Invest in YOU- Investing in yourself is just as important as investing in the stock market. You might choose to invest in your financial education, which could save you thousands of dollars throughout your life. You might choose to invest in your business, which could allow you to take control of your income. Or you could choose to invest in your health. After all don’t they say “health is wealth”!
The investment highway and what to watch out for – a word of caution
Investing can be a smooth and steady ride, just look out for potential bumps along the way.
* Avoid fees; more importantly, understand them
When you start looking through funds to invest in, you’ll notice that each comes with a set of fees. In many cases, the fees can range from 0.5% to 2%. Although that tiny swing in percentage points might not seem like an important detail, it can make a big difference in your portfolio’s growth. A 2% fee could add up to hundreds of thousands of dollars throughout your investing career. When you decide to invest, you should make sure to research the fees and minimize them wherever possible.
* Take a risk tolerance check
When you choose to invest your money, you should assume that you might lose some of your investment along the way. The market will rise and fall. External factors beyond your control can impact the markets. There will likely be some dips along the way. It is important to understand your risk tolerance and invest accordingly.
1. Diversify your portfolio
The best way to mitigate your risk in the market is to diversify your investments. You don’t want to pool all of your investments into one particular company or type of investment. Instead, you want your investment spread out in many sectors of the market. If one area of the market falls, then you will not be left with a sinking portfolio.
2. Rebalance your portfolio along the way
It is important to stay on top of your investments over time. Make sure that you are still on track with your objectives and the timeline still fits into your goals. The market will rise and fall, you’ll need to rebalance to ensure that you don’t leave all of your eggs in one basket.
3. Don’t try to time the market
Remember, investing is a long-term strategy to build wealth. Trying to time the market by buying low and selling high is not a wise strategy. Rather than focusing on short-term wins focus on long-term gains.
4. Avoiding the tax-man
Another tip is to remember taxes when you are planning out your investments. There are different strategies that you can use to lower your potential tax burden, but they require careful planning. If you aren’t sure about the tax implications of your situation, then consider talking to a tax professional.
5. Investing can be emotional
When you start to invest, you will realize that you have some big emotions attached to your investments. After all, the hope was that these investments will lead to a better future. The stock and property market comes with highs and lows and cycles. You should be emotionally prepared to weather these storms. When the market inevitably drops, it is not prudent to pull all of your money out. Instead, having the emotional money EQ to wait until it rebounds to make a withdrawal.
Understanding Money EQ is as important as money IQ. Know that money is energetic and will need to flow in and out with ease.
The Bottom (and top line) Line
The best way to build wealth through investing is to just get started; as soon as possible. So are you ready? What should we say?
SHOW ME THE MONEY!
