The Investment Journey for (New) Investors Part I (Situation, Mindset & Habits)

In this two part series, I lay out what I would do or what approach I would follow if I had to start over again as a new investor.

Situation

Before starting your investment journey it is wise to assess your financial situation. 

For example, if you are a person with sporadic work, lots of debt, no financial safety nets or working a minimum paying job then investing might not be your first priority. If you are in an unfortunate financial position all is not lost as you can still research investment strategies while you wait for your situation to improve. More yet, it might motivate you to pay off debt quicker, upskill to earn a higher wage or budget better in order to eventually start your investing journey. 

Mindset

If you are in a position to invest, the most important thing is to have the appropriate view/framework of what the stock market actually is.

Some participants might view the stock market as a place of speculation, like a casino, which, in my opinion, is incorrect. 

If you view the stock market as comprising of a collection of business which could generate you wealth over the long term then you are on the right track. It is therefore important to have a long term mindset, trying to "get rich quick" by using the stock market rarely works.

Ideally, you would invest money that will only be neccessary far in the future, kept uninterrupted so that it can compound over the long term. Therefore, do not borrow money to invest, use leverage or fear of missing out (FOMO) purchase various equities rather instill in yourself a patience/rational long term mindset.

Habits

You have the money and you have the (long-term) mindset, the next is to form positive habits. If you have a reliable monthly stream of income, the habit you must form is that of spending less than what you make! Unfortunately you'll never be able to build wealth if you cannot invest a part of your income it is critical that you develop this habit. 

The second most important habit is consistency. Investing should become like second nature, something you do every month. If you struggle with consistency, it might be wise to automate the process e.g. debit order. It is better to invest R50 each month than to invest a few hundred rands every now and then. If you do this each month you will eventually be able to invest more each month as you earn more money. Do not do the following: "I will start investing money when I earn more money."

In the next part, we will talk about the investment checklist, practical steps and final thoughts.