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8 simple steps to become a confident investor

March 03, 2020 10:01 IST
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Sheetal Jhaveri offers pointers which will help an individual start her investment journey with confidence.
Illustration: Dominic Xavier/

Mutual Fund

Economic crisis, lower GDP, unemployment, bankruptcy, killer viruses, apocalyptic climate change!

Gloom and despair is all that we are reading recently, to the point, that many individuals have stopped opening the morning newspaper altogether.

In this current scenario, how does one instill confidence among young investors or the first-timers who are just entering the world of investments?

Most investment avenues are seeing some headwinds or the other.

The housing market is at an all-time low, precious metals are too high for comfort, fixed deposits interest rates are so low that they don't even beat inflation, and the stock markets are as choppy as the rough seas.

In all this chaos it is but natural for a new investor who has some surplus amount to invest, but is afraid of the risks associated with all these above investment avenues, to stay on the sidelines.

Our aim is to ease the worries of that scared investor by educating and making her understand all the pros and cons of each asset class and help make an informed decision, and in the process help her create wealth for herself as well as the nation.

A young investor approached me a week ago for his financial planning, but what he wanted to do was park all his money in fixed deposits because he considered it the safest of all investments where his principal would not decrease.

As much as safety should be foremost on your minds, playing safe will not help you achieve financial goals.

Remember the adage 'no risk, no returns'. Well it's true. But you should risk your money blindly; go for calculated risks which must be ring-fenced using proper hedging techniques.

After all your aim of investment should be to achieve financial independence, and we all know independence involves struggles.

Are you guys ready to take your first step towards financial independence? Let's start.

Here are some pointers which will help an individual start her investment journey with confidence.

1. Understanding your attitude towards risk

How will you react to losing money in the market? There are four categories of investors:

Pragmatists: Who believe the world is full of uncertainties

Conservators: Who believes the world is full of perils and high risk

Maximisers: Who believe investment is low risk and full of opportunities and just jump into it

Managers: Who believe in taking moderate risk and expect reasonably better returns

Determine your category. But if you are young, I would definitely suggest you change your attitude if you think you belong to the top two categories.

At your age it pays to take some extra risk, and build an aggressive portfolio. Even if you lose some money, you will be able to bounce back in the future and consider this lost money as a learning experience.

2. Take some time to learn

Once you have identified your risk-taking abilities, try to understand about the products you are planning to invest in.

If you are planning to invest in the stock markets then get a thorough understanding of the working of the stock markets, watch the business channels, read magazines and business newspapers, take classes if you feel the need to.

Prepare your ground work.

Once you feel confident enough, understand the trends of the market, if you have a particular stock in mind then understand the company, the sector to which the company belongs, past trends and other parameters like company financial reports, etc.

It is a good idea to first do dummy investing, that is, do mock trades on a piece of paper where you buy a share which you like and see how it does after you have made the paper trade.

Since there is no real money involved here, it becomes easier to not be emotionally involved in it and look at the whole process objectively.

Once you are confident on paper, you can move on to actual trading. If, however, you feel that you are still not confident enough to do the investment on your own, it makes sense to invest in the markets through the mutual fund route.

Experts in the subject matter invest your money in the market on your behalf. Also don't just invest in any mutual funds. Research about the fund house, the fund manager, the companies or securities the fund has invested in, their past returns, etc.

Sounds too much for newbies? Don't worry, over time you will graduate to investing your own money with confidence. Just be disciplined in your approach. Don't dream of becoming a millionaire overnight and seek help of financial experts if you still don't feel much confident investing in stocks or mutual funds on your own.

3. Know your field

It is always better to invest in avenues that you understand and have knowledge about. If say, your family has been in the pharmaceuticals trade for decade, then it is best to channelise the larger portion of your investment into that sector, since you will have the guidance of your family members and it will help you skip the initial teething problems that a completely new avenue will pose for you.

In fact you can use their knowledge to expand your investment as well.

4. Be a rational investor

Investment should always be rational and not emotional. The moment, emotions come into the picture, your decisions get clouded leading to miscalculations or losses.

A rational investor is one who understands that every investment is fraught with some amount of risk and this risk must be factored into all your investments and return expectations.

Set a realistic goal for your profits and set a stop loss for your losses; stop losses mentally prepare you to deal with losses when you actually incur them.

You might argue that a lot is written about emotional intelligence and how it is very important and leads to better output. But for that you need to first understand its meaning. As per Psychology Today Emotional Intelligence/EI 'is the ability to identify and manage one's own emotions, as well as the emotions of others'.

Emphasis is on the word 'manage'. Individuals with high EQ have the ability to keep in check their emotions, and hence make better decisions.

If you cannot emotionally digest the thought of losing your money and the very thought of it puts you into depression, you are not cut out for risky investments.

Invest in less risky assets because no amount of wealth is worth your peace of your mind.

5. Take professional help, not digital

One of my clients after every consultation on investments would call me and say I read on a Web site that a so-called fund is better than the fund we are planning to invest in. I needed to explain to him that as per his needs, the fund we were investing in was much better suited to his style of investing and goals.

Accessing financial Web sites is now just fingertips away. But remember, it is after all a search engine, and so it gives search results for your queries; it does not have your interest at heart. Also what is good for one cannot be true for everybody.

Everybody's needs are different. When it comes to planning for your hard earned money, I would REALLY recommend professional help rather than just relying on search engines.

Do not shy away from taking professional help; it's not just for the rich; it's actually for people like you and I who want to use our limited set of resources to become rich.

6. Overnight millionaires

No one becomes Warren Buffet overnight.

Everyone needs to work hard and be a disciplined investor and always look at investments from a long term horizon.

Volatility is a part of investments; ride that wave and you will definitely reap the benefits. Rome wasn't built in a day.

7. Start small and invest for long term

Take baby steps, that is, start with a small amount and gradually build your portfolio. Do not go all in at first go.

Understand, monitor and learn by keeping a regular tab on your portfolio and churn your portfolio at regular intervals. Weed out the non-performers and add more of the outperformers.

Once you are confident invest bigger amounts.

8. Don't put all your eggs in one basket

Although everyone knows this one there is still no harm in repeating the cliche.

A judicious mix of various asset classes spread across various investing genres such as aggressive, defensive, high-risk, low-risk, high-return, low-return, fixed assets, liquid assets, etc go a long way. This way a setback in one asset classes won't cause a huge dent in your overall portfolio.

As suggested start small, learn from your mistakes, stay for the long haul and evolve into a confident investor.

Sheetal Jhaveri, MBA (finance) and a certfied financial planner, is the founder of Dhanplanner, an investment advisory firm. She can be reached at

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