Do not forget to measure your progress as an investor
You should keep a tab on the amount you invest, the liabilities
you have and your networth.
These are the three parameters one should be
watchful of to measure his progress as investor.
Becoming an investor is one and remaining invested is
another! I often listen to people throwing statistics on the changing investor
behaviour. These data suggest that investor mindset is slowly changing and
equity is viewed as an investment for the longer term, though I have my own
apprehensions about the authenticity of such data. I still meet many
individuals whose portfolios show that their investment decisions, be it buying
or selling, have had no rationale. Goal based investing continues to remain a
distant dream for many and I sincerely hope this will definitely turn around a
little sooner than later!
To be called an investor, you should practice goal based investing. After having inspired by the legendary Warren Buffett, I came up with the following rules.
There are only two rules if you want to be called an investor.
Rule No. 1 - “Never invest without a goal in mind”
Rule No. 2 – “Never forget Rule No. 1”
An actor or a director needs a hit or two to keep himself motivated for further ventures. Else he may shy away from similar subjects or may even decide to quit. Similarly, as an investor you do need some encouragement or other to remain invested.
How do you measure this progress of yourself as an investor?
The moment I say measuring the progress as an investor, do not jump to your portfolio gain / loss statements given by your advisor. That is not the right way of measuring yourself as an investor. Equity oriented investments may definitely disappoint you in the short term and going through the numbers will only pull you down. That is actually analysing your portfolio returns and not your investing pattern.
Investo-meter
There are three simple ways to study your progress as an investor. Ask these three questions to yourself. a) Am I increasing my investments every year, b) Am I reducing my expenses or liabilities on a biennial basis & c) Is my net worth increasing every year. If your answer is yes to two of the three questions, then you are on the right track and you will reach your goals in time or ahead of time.
a)Get an account of the total investments made in the last one year. Find out whether this has gone up when compared to the previous year. If yes, by how much? Quantify this in percentage terms. If the increase in income is 10% every year, then at least 20% to 30% of the increased income should be diverted to investments.
b)It is not a right argument to say that expense management has got nothing to do with investing. Is it not true that “Money saved is Money generated?” Get an account of your liabilities and monthly expenses. Track your monthly expenses and check whether you can plug any holes. Then address your liabilities. All your yearly bonus income and unexpected windfalls can come in handy to partial closure of your housing loan, the biggest baggage on your back. The surplus if any, at the end of every month, should also go to servicing your liabilities to enjoy lesser burden in the coming years. If your expenses or liabilities have come down even marginally on a year after adjusting for inflation, then you are on the right track and you can definitely feel happy about your progress!
c)It is no rocket science that when you take care of any one or both of the above, it directly impacts your net worth. A company is attractive for investment only when its debt to equity ratio is very low or zero. Similarly you, as an investor, are healthy only when your net worth keeps improving year after year. This is where you would see that the efforts taken by you will show up in numbers. If you increase your investments and bring down the liabilities, then your net worth would have jumped up. If you increase the savings and keep the liabilities as is, that is also fine. But before taking up some unavoidable liabilities, ensure that you have a proper plan in place to increase your net worth from then on. I would strongly recommend you to consult your financial advisor before buying any liabilities, be it housing or something else.
Conclusion – Investing is not just about returns. How you can get yourself motivated to stay invested or keep increasing the pace of your investments is by monitoring you, the investor. These three simple numbers will keep you motivated for the marathon called investing. Put this investo-meter in your living room and enjoy life like never before!
To be called an investor, you should practice goal based investing. After having inspired by the legendary Warren Buffett, I came up with the following rules.
There are only two rules if you want to be called an investor.
Rule No. 1 - “Never invest without a goal in mind”
Rule No. 2 – “Never forget Rule No. 1”
An actor or a director needs a hit or two to keep himself motivated for further ventures. Else he may shy away from similar subjects or may even decide to quit. Similarly, as an investor you do need some encouragement or other to remain invested.
How do you measure this progress of yourself as an investor?
The moment I say measuring the progress as an investor, do not jump to your portfolio gain / loss statements given by your advisor. That is not the right way of measuring yourself as an investor. Equity oriented investments may definitely disappoint you in the short term and going through the numbers will only pull you down. That is actually analysing your portfolio returns and not your investing pattern.
Investo-meter
There are three simple ways to study your progress as an investor. Ask these three questions to yourself. a) Am I increasing my investments every year, b) Am I reducing my expenses or liabilities on a biennial basis & c) Is my net worth increasing every year. If your answer is yes to two of the three questions, then you are on the right track and you will reach your goals in time or ahead of time.
a)Get an account of the total investments made in the last one year. Find out whether this has gone up when compared to the previous year. If yes, by how much? Quantify this in percentage terms. If the increase in income is 10% every year, then at least 20% to 30% of the increased income should be diverted to investments.
b)It is not a right argument to say that expense management has got nothing to do with investing. Is it not true that “Money saved is Money generated?” Get an account of your liabilities and monthly expenses. Track your monthly expenses and check whether you can plug any holes. Then address your liabilities. All your yearly bonus income and unexpected windfalls can come in handy to partial closure of your housing loan, the biggest baggage on your back. The surplus if any, at the end of every month, should also go to servicing your liabilities to enjoy lesser burden in the coming years. If your expenses or liabilities have come down even marginally on a year after adjusting for inflation, then you are on the right track and you can definitely feel happy about your progress!
c)It is no rocket science that when you take care of any one or both of the above, it directly impacts your net worth. A company is attractive for investment only when its debt to equity ratio is very low or zero. Similarly you, as an investor, are healthy only when your net worth keeps improving year after year. This is where you would see that the efforts taken by you will show up in numbers. If you increase your investments and bring down the liabilities, then your net worth would have jumped up. If you increase the savings and keep the liabilities as is, that is also fine. But before taking up some unavoidable liabilities, ensure that you have a proper plan in place to increase your net worth from then on. I would strongly recommend you to consult your financial advisor before buying any liabilities, be it housing or something else.
Conclusion – Investing is not just about returns. How you can get yourself motivated to stay invested or keep increasing the pace of your investments is by monitoring you, the investor. These three simple numbers will keep you motivated for the marathon called investing. Put this investo-meter in your living room and enjoy life like never before!
Happy investing
Source:Moneycontrol.com
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