4 ways to Invest wisely

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  Investing? Not a big deal, is it? All you need to do is find a great deal, invest some money and make incredible returns, right? That's what I used to think until I realized MMM would fit that definition. and MMM is clearly not what investing is. It's simply a ponzi scheme where you rob peter to pay paul and no value is created in the process Investing, in broad terms, is making a decision to add value to an entity with a need. This entity, as a result of the investment,  increases in value and, eventually, you earn good returns ,as a result of the value added by the entity. There are several ways to add value to an entity. You may decide to take up an ownership interest. That would be an investment in the company's equity publicly (on the stock exchange) or privately (Private equity) You may also decide to take up a financial interest if you're not interested in ownership.  This type of investment is defined as a debt owed to you. You'll get paid as soon as the debt tenor expires. Basic examples of debt instruments include certificate of deposits (also known as fixed deposit), bonds and  treasury bills. When you purchase real estate, you're taking up ownership interest while if you invest in complex financial derivatives, you're acting on your financial interest. Just before you make a decision to take up an ownership interest or financial interest in any asset category, It's best you consider the following; Don't invest in what you don't understand If you don't understand how it earns you money, don't invest in it. You stand a higher risk of losing your money to what you do not understand than to what you understand comprehensively. "Risk comes from not knowing what you're doing." (Warren Buffet) Investing can be really intimidating especially when it's with your hard earned cash. So, the key thing to note is simple, when in doubt, stick to what you know. Speak to a professional When in doubt you can also seek professional help. We made this mistake when we started our investment club. We didn't seek professional help till a bit later. It was a classic case of  'We're smart, we can figure this out'. Well, we lost money and, in retrospect, we learned great lessons but there's no need for you to make the same mistake we did (especially if you're risk averse). Investment/ financial planning professionals are trained to give you financial advice based on your specific requirements. For instance, most professionals will tell you not to invest in individual stocks as a beginner investor. You should start with investing in mutual funds as they provide access to diverse securities and protect your downside. Think long term "No matter how great the talent or efforts, some things just take time. You can't produce a baby in one month by getting nine women pregnant." (Warren Buffet) Some things cannot be done in a hurry or with short term thinking. When you think long term, you spare yourself the never ending concern of the highs and lows of certain markets. This applies especially to the stock market, as fixed income securities are relatively stable and safe. Stay out of debt if you can't handle it The question on if it's wise to take on debt to invest is a tricky one and it depends on your risk tolerance level. When you borrow to invest, you take on two levels of risk; the risk of incurring debt and the risk of investing. If you can take on both levels of risk with variables such as steady cash inflow and good returns from that investment, that's fine. Investing this way can go either of two ways; you invest with money that is not yours and earn returns good enough to pay back your debt and keep some change or you may lose money on that investment and have to pay back from another source entirely If you can bear that risk and protect your downside, that's great. Either way, it's up to you and it's fine as long as you've done enough research to consider the risk worth taking. You'll make overall better investment decisions when you consider these four points carefully. Remember, don't invest based on sentiments or what someone else is doing. Invest only in a way that works for you. Disclaimer - This article should not be construed as investment advice. I'm just a regular person on an investment