Three key factors to be a successful Investor

Written by Siamkia

Monday, 11 February 2008

Like other matter or subject, there are some factors to make that matter or subject to be successful.For example, to be a project manager, you need to have project management skill, communication skill, technical expertise and more.To be a successful business man, you need to have enough capital, willing to take high risk, opportunity and so on.How about investment? What are the key factors that required to be a successful Investor?

From my point of view, there are three key factors to be a successful Investor and they are time, investment skill and money.

Time

Time is the most important factor in life as well as in investment world.You will only have your childhood once,your young age once, your 40th year old once and they never repeat. In investment learning period, you need time to gain experience and build up your investment skill.You need time to grow your money thru compounding interest by re-investing your profit to your investment.You need time to do your homework before you can invest in any investment. All the tasks you need to execute for investment need time. Beside time needed for learning investment knowledge, time determines your age.Being a millionaire at age of 60 and being a millionaire at age of 30 has totally different meaning in your life.The difficulties to be a millionaire at age of 30 is 100 times harder than to be a millionaire at age of 60. But when you reach 60 in your age, money doesn't have much value to you.In that age, what you need more is health.

Investment Skill

Investment skill definitely is essential for making an investment.You will need time to build up your investment experience as well as investment skill.Investment skill is a skillset that help you to identify right investment.You can build this skill thru stuyding, experience, practical and self-learning. Investment skill can be categorized to various categories based on the investment that you are going to involve. Property investment skill is almost totally different with stock investment skill but there are some concepts that are similar.For examples, higher risk will give you the opportunity to get higher profit as well as higher loss. In investment world, the better investment skill you have, the lower risk your investment face and you have higher chance to get high profit.

Money

Money here is referring capital that is needed for any investment.That is the modal for you to make any investment.A lot of people claim that they do not want to make investment because they do not have money.This statement is invalid because not every investment need huge amount of money.For instances, in US market, you are allowed to buy stock with minimum 1 unit.It means that you will only need $5 to buy 1 unit of stock with price $5.In Malaysia stock market, the minimum unit is 100 unit.You will only require RM30 to buy 100 unit of stock with price RM0.30 excluding brokerage fees. Same with Investment skill, money or capital needs time to grow and gather.

The Most Important Factor

Among these three factors, Time is the most important factor. If you do not know anything about investment, you can build up thru experience.If you don't have money, you can gather it after some time.The second and third factor can be build up thru time but no factor can build time for you. That's the reason people always says time is precious. It is more valuable than money and skillset.Since time is the most important factor,as earlier you start to learn investment, the better you are.As illustrated in article Why everyone need to learn investment?, the earlier you start to invest your money, the earlier you can prevent your money from deflation and make more money from your capital.

To give you all a good example, please refer the following table.Assuming there are two youths - John and David.John starts to invest in share market with $10,000 capital at his age of 25.David only starts to invest in share market at his age of 30, but he has two times of John's capital - $20,000.We assume that both of them are able to get 15% return every year.Let's see the outcome when they are in age of 35.

Age	John's Amount	Investment Return	David's Amount	Investment Return
25	10,000	10,000 x 0.15 = 1,500
26	11,500	11,500 x 0.15 = 1,725
27	13,225	13,225 x 0.15 = 1,984
28	15,209	15,209 x 0.15 = 2,281,
29	17,490	17,490 x 0.15 = 2,624
30	20,114	20,114 x 0.15 = 3,017	20,000	20,000 x 0.15 = 3,000
31	23,131	23,131 x 0.15 = 3,470	23,000	23,000 x 0.15 = 3,450
32	26,601	26,601 x 0.15 = 3,990	26,450	26,450 x 0.15 = 3,968
33	30,591	30,591 x 0.15 = 4,589	30,418	30,418 x 0.15 = 4,563
34	35,180	35,180 x 0.15 = 5,277	34,981	34,981 x 0.15 = 5,247
35	40,457	40,457 x 0.15 = 6,069	40,228	40,228 x 0.15 = 6,034
Total Amount	46,526		46,262

In the outcome of the table, in the age of 35, John will have around $250 more than David.You might think that John only earned a little bit more than David.In fact, when they are 35 year old, John already have 10 year of investment experience as well as investment skill while David is only have 5 year of experience.With better investment skill, John is able to manage his portfolio in lower risk and get higher return.In his age of 36, he might be able to produce 20% investment return per year. This is the intangible benefit which we could not see in the table.

In reality, at first few year of investment, you might not able to gain profit or might lose some of your capital.If you are keen on learning investment skill and move towards a right direction, your investment return will turn from negatif to positive and it is able to grow year by year.This is the real benefit of starting to learn investment in a younger age.Hence, start to learn on investing from today onwards!

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Last Updated ( Tuesday, 12 February 2008 )

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