Make sure to assess yourself, before going ahead!

Investing can be a daunting experience for some people who don’t understand the depth of water before jumping in. I shall be listing out a framework for you to understand your investing thought process so that you work towards it in a systematic manner rather than pointing to shoot a moving target.

Let me breakdown the process into 7 key pointers that you need to keep under consideration in order to streamline your investment strategy.

1. INVESTMENT GOAL! If there is no goal or ultimate target set for the investment, it will remain counter intuitive, even with best of your intentions you cannot sustain long term investment stint if you don’t have a fixed goal for the investment you are committing. This is true as its very easy to distract from a road going towards your destination if you don’t have clear map and directions.
   

2. CAN YOU DO IT CONSISTENTLY? Here, I would not recommend anyone to do one time big chunk of investment at once specially if you are not experienced enough for the investment class. This is offcourse not valid for any big ticket investment like real estate – but for stocks, gold, and any other investment where entry point is low – one should do in small chunks on regular basis until they understand what they are doing.
   

3. KEEP INFLATION IN MIND! Just to take an example, being in the UAE, the price of gold has not moved a lot if you compare 2012 until now – but at the same time if you compare the price of gold in PKR while earning in Pakistan, the price of gold more than doubled during the same time. So the inflation in local currency hurt more than someone earning in USD. In case you have long term goals of spending in foreign currency, the investment vehicle should be compatible with your vision.

   PRICE OF GOLD IN USD

   

   PRICE OF GOLD IN PKR:

   

4. REMEMBER HOW TAXATION WORKS: Often time we completely ignore taxes – specially the gulf expats who after leaving their home countries tend to forget that there is something as tax too once they go back home! This calculation should always be at the back of your mind for all the investments.
   
   For people already living in Pakistan, they should understand that most of the investment transactions that they do are subject to tax and the more frequent you do the transaction, the more taxes you will attract. For example, if you tend to buy and sell property on frequent basis, or if you do frequent transactions in your mutual funds, you are liable to pay more taxes – and that amount has to be offset from any profits you have in your mind.
   

5. THE INVESTMENT VEHICLE: The investment vehicle should be carefully chosen and this is the one of the reasons I mentioned before that one should invest slowly and gradually and not to go all in. In case you find out a surprise in the chosen vehicle, you have the option to opt out from it after lets say 6 months with a minimal loss – but if you already have got big exposure, you might not be able to exit without considerable loss.
   
   You can diversify the investments too with different investment vehicles easily rather then putting all the fund in one vehicle in one off investment.
   

6. ARE YOU OK WITH THE RISKS: If you are a kind of person who track the investments status every single day – then stock market might not be the right place for you specially for the long term bet. Stock market can perform wildly in both positive and negative sides, similarly, many other asset classes like crypto can be too volatile for a faint hearted person. You need to identify your risk appetite and time horizon, otherwise the investment which is suppose to provide you and your family security, will be the reason of anxiety only.
   

7. COST OF INVESTMENT: Similar to what have been mentioned before about the tax consideration – the cost of investment should not be ignored. Most of the investments come with associated transaction fees etc. Take an example of property, while buying & selling, it will attract agent’s commission, government fees, if the property is rented, you might have to vacate the property and until that time, you will not receive any rent from it etc.
   
   Similarly, in case you are investing in stocks or mutual funds, you need to be aware about the terms like broker fees, exit load, entry load, management fees etc in order to find out the real cost of investment in that vehicle.

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Next week’s videos:

• India’s new crypto law and its implications [What can Pakistan learn from it], already uploaded, can be viewed here

• Q&A Session

• Either the video on how has been HUBCO stock performed for me OR How the mutual funds have so far resulted in for me – you can feedback which one you want to be released earlier 🙂

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