My finances, my projects, my life
December 13, 2019

Professor Nabil’s tips. Lesson 2: your first steps as an investor

  Compiled by myLIFE team myINVEST November 3, 2017 12929

Hi everyone! You already know that it is possible to invest without going broke, you are ready to take the plunge and by now you may even have some ideas of your own. Well done! But be careful, as my friend Warren Buffett said: “Following rules is investing. Following emotions is betting.” So today I am going to use this session to explain how to take your first steps as an investor. Pay close attention and I’ll explain the “Ten Commandments” you should use as your guide.

1. Thou shalt draw up a financial plan

If you have decided to invest, that means that you have at least some available capital. Nevertheless, you need to define a framework and set the budget you wish to devote exclusively to your investments. Be reasonable about the amounts involved. Do not simply “open the floodgates” when you invest, or you’ll be setting yourself up for some big disappointments. And it’s important to think ahead! Prepare for any taxes on your future capital gains or any cash needed for potential work, acquisitions or notary costs if you are planning an investment in real estate.

2. Thou shalt call thy banker

You have to be shrewd if you want to be smart. Talk to experts before taking the plunge. Give yourself the means to establish solid and durable foundations on which to build your financial wealth. Assessing your investment targets (including your risk tolerance), your financial resources and your knowledge and experience as an investor is part of this process, and your banker is best placed to do this.

Your banker will provide invaluable support with creating your investment profile and help setting up a financial plan, providing particular assistance in highlighting the most suitable products for your situation and helping you to define the best way forward.

3. Thou shalt set a goal

Take advantage of the time with your banker to jointly set medium or even long-term targets. History shows that long-term investments often yield better returns, irrespective of where you choose to invest your money. Avoid speculation, particularly when starting out. Short-term investments, just to get a quick win, are not recommended at this stage of my lessons. From sowing the seed to reaping the harvest, you must learn to have patience.

If you have neither the time nor the inclination to gather the information for yourself, there are still attractive alternatives. Your bank offers both investment advisory and discretionary management products.

4. Thou shalt expand thy knowledge base

Good investors educate and inform themselves and keep abreast of the latest trends in the stock market or their chosen investment sector. Take out a subscription to magazines focusing on the economy, tune in to radio or television programmes devoted to economic news, read online content and subscribe to specialist forums. Here, however, I could add a further commandment: “Thou shalt ignore false prophets!” Don’t listen to anyone and everyone, and don’t do anything and everything. And avoid any so-called experts preferring to remain anonymous like the plague.

If you have neither the time nor the inclination to gather the information for yourself, there are still attractive alternatives. Your bank offers both investment advisory  and discretionary management products.

5. Thou shalt diversify thy assets

I cannot repeat this often enough: don’t put all your eggs in one basket! Ensure you invest in a diverse range of products and financial instruments and vary the underlying business sectors. If you have properly applied the fourth commandment, why not expand your horizons and also invest in other regions of the world? The economy is not always at its peak in one place. Watch out for any fees resulting from spreading your assets in this way, though, starting with foreign exchange charges if you invest in different currencies.

6. Thou shalt use the right tools

An investor without a memory is an investor without a future. Set up a database, historic data and spreadsheets to monitor your investments. There are some good IT tools available for this. Otherwise, have another chat with your banker, who should be able to help you with this too.

7. Thou shalt consider safe bets

There are as many investment products and financial instruments as there are reasons to invest. So take your time when making a decision. To start with, I would suggest you look at low volatility, “secure” products such as government bonds. This is a fairly safe investment since governments rarely go bankrupt. Shhh! I can hear those at the top of the class giggling. I did say rarely – not never.

8. Thou shalt control thy emotions

Listen to experts, but also learn to ignore rumours about the state of the market. These are often responsible for the unjustified hype around a certain stock or product. Hold your nerve during exaggerated moves.

Your purchases and sales must be driven by your targets and the strategy you defined at the outset. So, take a deep breath, exhale slowly, keep calm and learn to control your emotions.

The higher the targeted return, the greater the risks you must take, and this is not necessarily recommended at the start of the adventure.

9. Thou shalt assess the risk

Get rid of that Flemish painting above your bed, the only thing I want to see there is a poster with the following in fluorescent red flashing lights: “return = risk”. The higher the targeted return, the greater the risks you must take, and this is not necessarily recommended at the start of the adventure. Keep this balance in mind. Investors have an annoying tendency to focus on the return, while remaining in denial about the risk involved.

10. Thou shalt always remain humble

Remain humble on every level: in terms of the sums you commit, your successes and the decisions you take. And in life more generally, if I may be so bold. Well, we each have our own philosophy, don’t we?

In any event, there are no guarantees with investment! Don’t forget that past performance is no guarantee of future performance. Indeed, that is what makes the investor’s daily life interesting. Regularly reassess what you are doing. It is quite exhilarating when you are prepared and well organised. 

Experienced investors undoubtedly use these “Ten Commandments”. So now you are already on an equal footing with them! In any event, these good habits should help you avoid a whole host of errors when taking your first steps. For the next lesson, read one or two works on the subject of investment.

Come on, put down your tablets, it’s break time