5 Signs You’re Ready To Start Investing, According To A Financial Advisor

Once we reach a certain age, we may feel pressure from others asking if we have started investing. But as we have likely heard a lot of good and bad things about investment, so we may feel hesitant about the topic, as we may be afraid of losing our hard-earned money to some of these risky schemes. However, one of the proven ways to grow your money efficiently (besides earning an income) is to invest it. But here’s another question: are you fully equipped to start your investment journey? 

We asked licensed financial advisor, Bryan Zeng, who is also the CEO of FA Advisory Sdn Bhd, a financial planning and advisory firm, what the indicators that prove you are ready to begin investing, and here is what he had to say.

You have 3-6 months of emergency funds   

Investments come with risks; therefore, it is important to have some funds to fall back on in case things go south. Bryan suggests that young investors should have an emergency fund that can cover around 3-6 months’ worth of expenses. These funds will be your safety net, providing you with a cushion to cater to unexpected expenses, such as car repairs, house renovations or job loss. 

Without an emergency fund, you may have to dip into your investments prematurely, before they have had a chance to grow, which can cause you to miss out on future gains. 

By setting aside money in case of rainy days, you can invest your additional income with peace of mind.

You understand your risk appetite 

Knowing your risk appetite (how much risk you are comfortable to take on) is crucial before making any investment decisions. No matter what, an important rule is to only invest an amount you can afford to lose.  

To understand your risk tolerance, there are many assessment tools online that can help you evaluate your risk profile.

Bryan advises, “Understanding your risk tolerance is very important so that you will know what to invest in that is aligned with your comfort level. You do not want to take on too much or too little risk.”

Other than risk assessment tools, he states that it is also helpful to understand your financial situation, such as cash flow, income stability, age, and number of dependents. For example, a parent of two children might prefer investing in a low-risk asset, while a young adult with a stable income may be more comfortable taking on higher risks.

All of these factors play a significant role in determining the suitability of your investment choices.

You have the right financial habits  

Other than making smart investment decisions, having good financial habits is key to becoming a successful investor. That’s because, before you start growing your wealth, you first need to be able to manage your day-to-day finances well.” 

According to Bryan, an important mindset to adopt is to “live well below your means”. You can start by creating and adhering to a monthly budget strictly, such as allocating a set amount for your daily meals or cutting down on self-indulgence spending. Learning to prioritise your needs over wants can also help you spend less. “This would ensure that you have extra money after paying off all your expenses. Once you have cultivated a habit of saving consistently, set aside a portion of your monthly income for investment,” says Bryan. 

This habit alone will put you on the right path to accumulating wealth over time. 

You know where to seek credible financial advice 

It’s okay to seek help if you are unsure of something, especially when it comes to investing. Feel free to consult a licensed financial advisor or seek advice from credible websites that can help you plan your investment journey. 

To ensure that your advisor is licensed, check if they are affiliated with any of your country’s financial planning councils. Some countries provide licenses that can be verified  on their database and websites, so you can trust them with your money.  

You can also familiarise yourself with personal finance basics, such as budgeting, compound interest, loan options, debt, and diversification.   

Bryan advises, “Start learning about personal finance as early as possible. Participate in financial literacy programmes that are available in schools or universities.” 

There are also other financial literacy initiatives organised by financial institutions that are helpful in providing insights into managing your finances, so do take advantage of that! 

You have a goal in mind  

In addition to choosing the right investment, having a goal in mind helps motivate you to achieve your financial aspiration, whether it is for retirement, a down payment on a house, or your dream vacation.

Bryan shares that having a clear goal in mind helps keep investors on track, especially in times of volatility and market noise. Moreover, he suggests adopting the SMART goals framework: Specific, Measurable, Achievable, Relevant, and Time-bound, when you are planning your investments.

First off, you can specify your goals by categorising them into short-term, medium-term, or long-term objectives. Then, make sure that your goals are measurable; for example, you determine to make an average annual return of 6% on investments.

Not to mention your goals have to be achievable and realistic. Bryan suggests setting smaller, more achievable goals over a shorter term. It is advisable to plan your investments in a way that aligns with your comfort level and daily life, so you will not feel too overwhelmed. And lastly, set a timeline for your goals, so you can focus on achieving them consistently.

For example, if your goal is to save up RM100,000 in 10 years, start by saving RM10,000 a year first. Breaking down larger goals into smaller, manageable targets makes it easier to achieve your savings goal gradually.

Extra hint: Here’s a good way to start your investment journey  

According to Bryan, one of the best ways to start investing is by buying unit trusts. These are well-regulated investments that are easily accessible to everyone and widely available through banks, sales agents and online platforms. There are various types of unit trusts to explore, each with the potential to give you decent returns over time.

Furthermore, new investors can take advantage of the various online robo-advisors that are licensed and regulated. They offer a convenient way to invest and provide algorithm-driven financial guidance to help you get started.

One piece of advice from Bryan: “Proper investing takes time and discipline; there are no shortcuts when it comes to getting results.”

So, take your time to research instead of blindly following trends. As you gain more experience and knowledge, you will feel more confident exploring other investment options and growing your money more efficiently.