6 Investing Lessons you should learn

Here are 6 Investing lessons that you can use to invest better.

1. If you buy things you don’t need, you will soon sell things you need.
You can make more money not only by investing or taking up a second job, but also by resisting the temptation to go out and just splurge. As the saying goes – a penny saved is a penny earned.

To be a successful investor, you need to use due diligence. Spending wisely is not about being miserly, but about being smart. Invest in assets that give you good returns over the long term- one that helps you secure your financial future.

2. Price is what you pay. Value is what you get.
Most of us know this- the money we pay for something and the value we get out of it, most of the time, does not have a correlation. You could possibly buy a posh apartment for 1 crore rupees. But staying in the apartment does not guarantee a high quality of life- does it?

Instead of trying to time the market and extract every rupee profit you can possibly get out of your investment, invest in assets that will generate inflation-beating long term returns and hold on it for a long time.

3. It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Investing in undervalued stock with great potential and holding on to them forever is always recommended. In-line with this philosophy, buying shares of a wonderful company at a fair price is much better than buying a mediocre company at a cheap/bargain price.

Don’t try and time the market or buy into NFO mutual funds because the NAV is low. Invest whenever you have the money and hold it for as long as possible.

4. Be loss-averse
Majority of investor’s measure performance solely based on return. You should not strive to make every dollar a potential profit which involves too much risk. Instead you should be loss-averse. Preserving your capital should be your top goal. By avoiding losses you’ll naturally be inclined towards investments with assured returns.

5. Be tax savvy
Be knowledgeable about tax laws and use them to your advantage. Before you invest, make sure you understand the tax implications of your investment.

While investing in Bank FDs might give you 9% returns, the interest is actually taxable as per your tax-bracket. The real return, if you are in the 30% tax-bracket, will fall to just a little above 6%. Now, that’s below inflation rate and you are effectively losing money the longer you invest in it.

6. Limit what you borrow
With daily offers from ecommerce companies, it might be tempting to buy that latest mobile phone on an EM. Considering the fact that the phone you bought for EMI (plus the processing fee which is in-directly the interest you pay for the EMI facility), and it loses its value over time, it is best if you limit your borrowing.

Borrow only when it’s absolutely necessary. When borrowing, make sure you understand all the fees associated with it. Sometimes, the real cost of bowing money will be hidden as miscellaneous charges like processing fee.

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