What Is Smart Investing? 10 Ways To Do It (2024)

Smart investing is an extension of the basic principles of investing and entails making the right investment choices that meet your specific needs to help you achieve your future financial goals. With a plethora of investment opportunities available today, it is easy to pick a financial product that may not be most suitable for you. It is hence important to be a smart investor to plan your time and money well.

Smart investing helps you do three important things:

• Allows you to create an additional source of income
• Provides for long-term financial security
• Helps create sufficient post-retirement wealth

Here’s are the top 10 ways in which you can become a smart investor.

1. Start Investing Early

Investing as soon as you start earning can provide you with an edge. And even if you have crossed that point in your life, it is better late than never. Early investing can make sure that your money has enough time to grow into a substantial corpus fund that will serve you well in times of need or when you decide to retire.

2. Consistent Investments

Investing just once a year or sporadically is not enough. For your money to grow well, you need to invest a stipulated amount each month or quarter. Maintaining this financial discipline is paramount if you wish to reach your financial goals. Systematic investment plans (SIPs) and auto-payment options are some of the best options to observe this practice and ensure that a fixed amount of money is deducted each month without fail.

3. Build a Diverse Portfolio

The age old saying ‘never put all your eggs in one basket’ still holds true. Diversifying your investments can help with risk management and avert financial losses in case of a volatile market. The economic instability caused by the Covid-19 pandemic serves as one of the best examples here. Investors who had concentrated their money into one kind of stock faced heavy losses as opposed to those who rather diversified their portfolio. Hence, it is always advisable to diversify your investments into different asset classes.

4. Don’t Underestimate the Power of Compound Interest

Time is one of the biggest assets an investor has, and it is wise to use it for financial gains. When trying to build wealth, it is not enough to just invest and earn returns and spend that money. Reinvesting the interest yielded could generate larger sums of money, allowing you to build a robust financial portfolio over time.

5. Don’t Chase the Highest Return

Successful investing doesn’t always mean seeking the highest possible returns in the shortest period of time. Smart investing tells us that low risk and steady investments that are done over a long period of time are the ones that grow the best.

6. Build a Risk Appetite

While this may seem like a step for big corporate companies, it is an important step for any financial investor. Risk is an inevitable facet of investing, however, how much risk one is willing to take on can be measured. Keep in mind risk tolerance while setting your financial goals. Knowing the threshold of financial losses you can sustain and your tolerance for turbulent markets is important and will help secure your financial future.

7. Track Investments Regularly

Investments involve a lot of nurturing, which is why it is crucial to keep track of your money. Create spreadsheets that have all your investments listed in order to track and analyse performance. Also, making monthly expenditure reports can help to enhance saving strategies and understand just how much liquidity is required. All of these little disciplines when combined together can form a robust financial management system to hold you in good stead in the future.

8. Avoid Herd Mentality

“Even the intelligent investor is likely to need considerable will power to keep from following the crowd,” says Benjamin Grahamin in his seminal book ‘The Intelligent Investor’. While making financial investments, it is easy to follow what the rest are doing, but that may not always be the right road for you. Financial goals are extremely subjective, they depend on your risk tolerance, your vision for wealth and your family’s needs. Each person is different and there is no one-size-fits-all approach. Hence, following that hot tip that everyone else is going behind may not be the wisest choice.

9. Educate Yourself

Before making a foray into the stock market, it is important to learn the basics. Understanding the inner workings of trading stock will help you to make better financial decisions. As for other investments, keep up with new financial products and read investment books by industry experts. Even a general awareness about financial news coupled with a disciplined habit of learning one new thing about investing everyday will pay off in the long run.

10. Patience is a Virtue

Once again, we can take comfort in some proverbial knowledge: “Good things come to those who wait.” This adage can be applied to the financial world as well. Most investors look for immediate profits. However, such haste can lead to significant financial losses. Instead, looking at investing as a long-term exercise is much more beneficial because healthy profits take time to build.

Pro Tip:

Smart investment also involves putting in place strong emergency plans. Having a healthy insurance scheme and a trusted life insurance plan are important instruments to ensure financial safety. While choosing a life insurance plan, opt for a longer age-cover as this is the safe bet. And while choosing health insurance, ensure that it covers critical illnesses and provides a family cover.

Milan Ganatra is the founder and CEO of 1Silverbullet. He started his journey towards building technology-led solutions for the financial services sector in 1999 with Miles Software and is actively involved in investing in finance companies.

Aashika is the India Editor for Forbes Advisor. Her 15-year business and finance journalism stint has led her to report, write, edit and lead teams covering public investing, private investing and personal investing both in India and overseas. She has previously worked at CNBC-TV18, Thomson Reuters, The Economic Times and Entrepreneur.