Are you new to investing? If you are, here are some of the questions that might be on your mind:
- What should I invest in?
- Is it true that investing is risky?
- Are the returns from properties better than stocks?
- When is the best time to enter the market?
- How do I invest with little capital?
These questions are valid, even if the answers are not straightforward as investing is dynamic.
Take “what should I invest in?”, for example: the answer from an experienced investor today would be different compared with 10 years ago, thanks to ever-changing market trends and the investor’s own skills and knowledge.
There are savvy investors who have built wealth from real estate, just as there are those who have lost money in the property market. The same applies for other asset classes, be it stocks, unit trusts, or EFTs.
It’s understandable to be overwhelmed if you’re new to the investment game, so let’s simplify and narrow all your queries down to three fundamental questions.
Where should you start?
One good way to kickstart your journey is by shifting your initial focus away from “my prospective investments” to “my capabilities as a potential investor”.
This writer, for instance, became knowledgeable in the finance and investment field by reading from other successful people, the likes of Warren Buffett, Robert Kiyosaki, Morgan Housel and others, both foreign and local.
This is an important first step as one not only gains insight into the field, but can replace assumptions and “old ideas” about money with “new ideas” that will enable one to be a better investor.
What’s the No. 1 skill investors should learn?
The answer is: “accounting”. Yes, seriously! Many people try to invest without accounting skills and, as a result, lose money. This is why they believe investing is risky.
In truth, it’s only risky if you are not financially literate. Without accounting skills, many resort to buying or selling based on gut feelings or emotions, which is not an advisable approach.
In this context, accounting basically means having a solid grasp on these seven concepts:
- income;
- expenses;
- profits (surplus/deficit);
- assets;
- liabilities;
- equity/net worth; and
- cash flow.
Using stocks as an example, one could apply accounting skills to a stock to:
- grow its income (generate revenue);
- control its expenses;
- increase its profits;
- expand its assets;
- be conservative with debt;
- expand its equity; and
- boost its operating cash flows.
With property, on the other hand, you could:
- raise rent from tenants (income);
- control property-related expenses;
- make sure you break even or gain profit to reduce tax payments;
- find undervalued properties that will appreciate over time;
- keep a healthy debt-service ratio;
- boost your property equity; and
- ensure rent is collected with all expenses paid on time.
Hence, with accounting skills, you can find better-quality investments independently and reduce risks.
Is there a quick way to become a savvy investor?
Today, many want instant success and to be able to have profits without taking the time to learn, plan, strategise, filter, decide, and take responsibility when it comes to investment matters.
But the simple truth is that investing means going down the long route. There is a process to learning and developing skills, and it takes time.
Some believe the only ingredient to start investing is capital. “If I have RM100,000 to invest, where should I start?”
If you have this amount without any real knowledge about investing, it would be most helpful to quickly acknowledge this shortcoming, after which you may focus on:
- learning about investing from other successful investors;
- getting a solid handle on accounting; and
- being patient and trusting in the process to help you attain wealth over the long term.
This article first appeared in KCLau.com. Ian Tai is a financial content writer, dividend investor, and author of many articles on finance featured on KCLau.com in Malaysia, and ‘Fifth Person’, ‘Value Invest Asia’ and ‘Small Cap Asia’ in Singapore.