Investing has recently become a buzzword. The media publish investment specials, and trustworthy (even slightly less trustworthy) educational programs have sprung up on the market. Sometimes it's difficult to navigate, isn't it? Especially to those who are just thinking about investing and have not even taken the first step, the whole thing may seem like a Spanish village. At INVESTOWN, we have therefore written down a principle of responsible investing that everyone should know. Ready? Let's go!
Principle number one: learn to control emotions
Whether you are a future micro-investor, even choose to buy an apartment for your investment, or plunge into the bowels of the stock markets, the whole thing can be challenging on your psyche. It's about money, after all. And even these are associated with emotions. Ten crowns take the devil, but as soon as you decide for the first time to send somewhere tens or hundreds of thousands, it is clear that it will not be quite simple. It is important to realize again and again that when investing, emotions need to be pushed aside.
Have you decided to invest? First, think through everything and calculate carefully. And when a small crisis comes or the selected market fluctuates slightly, do not put your feet on your shoulders. The reason for the failure of many efforts is the fear of uncertainty. This can result in an ill-advised sale at the moment when your investment is "below price", that is, at the worst moment ever. Most of the time, it pays not to panic and wait. Otherwise, you will easily and quickly lose money, and only for the sake of your own head.
Principle number two: have a long-term strategy
Investing is shrouded in a shatter of prejudices and misconceptions. You will surely think of this one: a formally dressed young man almost randomly buys for hundreds of thousands of crowns and hopes that the graph will grow for a while, or jump from red numbers to green. The moment this happens, he immediately monetizes the investment and makes a profit from it... hundreds of percent!
No, that's not exactly how it works. This is how investment is presented only by dubious websites and American big films. Responsible investing means having a long-term strategy, managing assets and increasing their value over time. Whether you're microinvesting or buying on the stock exchange, always think about what your investment will look like in 5, 10 or 15 years.
Here's a simple sample example. While in 2005 you would buy an apartment in Prague for CZK 20,000 per square meter, this year, with a bit of luck and with scratched ears, you will fit under CZK 100,000. Although the average salary was also lower, in 2005 you could earn an average of CZK 19,030, now we have reached an average of CZK 29,000. Even so, it is incomparable. And now imagine that your investment in an apartment in the next 15 years will multiply fivefold as in previous years. Given the currently very high price of real estate, this is unlikely, but it will certainly be enough for a demonstration.
Think long term. Maybe tomorrow or in a week you won't buy a new car or a dream vacation. However, even a few well-chosen investments or micro-investments can pay off in the long run. Your savings will not be exposed to 3% inflation and their value will only grow over time.
Principle number three: calculate it well
Investing is not a gamble. That is, if you don't want to. Each investment must be carefully calculated. For example, in the case of a standard purchase of an apartment for investment, you may need to calculate the return on investment in the apartment, the so-called IRR.
Fancy a little exercise? You can save the interactive spreadsheet as a copy here. In the Deposit (Purchase) line, you can write down how much the acquisition of an apartment cost you, or how much you would like to buy one. At the same time, in the following lines, you will indicate how much you return annually in rent, from which you can still subtract the total annual costs. In the Current asset value line, then fill in what the property is worth at this point. The IRR table is very sensitive to time and details. In order to get the right percentage return in the end, you need to insert really accurate data. How does it work out for you? If between 3-8%, it is definitely a very good result. If more than 8%, you can applaud, such an investment is already very good!
To give you control not only over your investments, but also over your entire assets, try to create your own cash flow chart, where you write down your income and expenses every month. Thanks to the cash flow table, you will have an overview of how much money you can invest per month. Even the occasional micro-investment will move you step by step towards your dream financial goal.
TIP: How to create an interactive table of your own cash flow? We'll talk about that again next time.
Principle number four: educate yourself
Of course, even with investing, you can "cheat." Watch those who do it well, or pour money somewhere where there is no need to take care of them. But when it comes to slicing bread, it's mainly those who know what they're doing. If you are educating yourself for a long time in the segment in which you invest, you will definitely not miss out on larger changes or threats. It's only thanks to this that you can react quickly when something comes together.
For example, if you choose to invest in real estate or directly in apartments, it is good to follow trends, the rise versus fall in prices in the regions, but also the overall state of the market in history. You will also be interested in crises in the field of Airbnb or changes in laws dealing with taxes, rent or neighborly relations. There's a lot to keep up with, but it's worth it.
You can also get a general overview by attending conferences or attending online webinars. You can also get great information on various courses. Do you like reading? Then you will definitely appreciate the countless investment books that you can get in every bookstore.
Principle number five: count on (micro)risk
One such equally important principle at the end. Whoever does not try anything will not lose anything, but he will not gain either! Money stored in your account loses value due to inflation, but it will definitely not escape anywhere. If you try to evaluate them somehow, even if only conservatively, you will always be one step further. The surest way is to spread the risk by investing in more things. It's called portfolio diversification. If one investment fails, the other will balance it out. This will reduce the chance that you will lose all your money in the event of an unexpected crisis.