“If you do not find a way to make money while you sleep, you will work until you die.” Warren Buffet

Making money while you sleep typically means earning passive income, which is basically through investing. Investing may seem overwhelming, given the myriad types of investment options available. It can especially be intimidating if you lack the knowledge and experience or even understanding of the basics.

Certainly, becoming a good investor is not easy; it requires fundamental skills to gain maximum benefits in order to reach your financial goals.

So, before you make any investment decisions, here are a few things to do:

  1. Set clear financial goals/plans

The first step before making any investment is creating a financial plan that details all your goals. Take an honest look at your entire financial situation because this will give you a clear idea of your investment goals and how you’ll be able to achieve them. The financial goals should include short-term, mid-term, and long-term goals. The goals will determine when you need to reap the benefits.

Short-term goals can take up to one year and are for things you want to do in the near future. For example, you could be saving for a phone, a laptop, or paying for a vacation.

Mid-term goals are goals you plan on achieving within five to 10 years and include loan repayments, buying a car, or starting a business.

Long-term goals include saving for retirement and paying off a mortgage. These are goals you would want to achieve in future.

Financial goals are pretty easy to create, but enlisting the services of a professional to do it, like a financial advisor or coach is also applicable. That said, it is prudent to come up with one as soon as possible.

2. Save

Before you make any decision to invest, you have to have some savings, so make saving a priority. This means that you have to set aside a portion of your salary for savings. Remember to save the amount you have committed first before you pay your bills or go shopping.

To make it easier, automate your savings; this way, you won’t forget to set the money aside.

One key to saving and building wealth eventually is saving aggressively, living within your means, creating a budget, tracking your spending and reviewing it regularly to ensure it delivers value.

3. Research the market

Before you invest, it’s important that you diligently research what factors or issues may have an impact on your investment.

Read widely, talk to friends and family or get in touch with an expert to help you understand what’s going on in the market in the country and globally. Factors such as interest rates, inflation, unemployment rates, and political events could impact your investment, so it’s critical to stay abreast of these issues.

4. Familiarise yourself with the investment options available

There are so many investment options in the country, and depending on how confident and informed you are, you could either take a passive or active approach to managing your money.

These are some of the asset classes one can invest in:

  • Equities
  • Fixed income
  • Property
  • Private Equity
  • Exchange Traded Funds

5. If you don’t understand it, don’t invest in it

There’s currently a proliferation of investment products in the market, and anyone new to the investment world will be faced with plenty of choices. Some of the products in the market are complex, and beginners may not fully understand them. The rule of thumb, therefore, is to never invest in anything that you don’t fully understand because it may contain hidden risks.

6. Consider a healthy mix of investments

Getting a good mix of investment can be done through diversification and asset allocation. These two concepts, diversification and asset allocation, are pertinent in managing investment risk and optimising returns. Diversification means spreading your investment across different asset classes, industries and even geographical boundaries to reduce the risk in your portfolio. While diversification does not guarantee against loss, it ensures that when one investment performs poorly, it can be offset by a better-performing one, hence a good overall return.

Asset allocation, on the other hand, is the process of dividing the money in an investment portfolio among equities (stocks), fixed-income assets (bonds), and cash.

7. Understand your comfort with risk

Every investment has a level of risk. It’s, therefore, important to determine your risk tolerance early on in your investment journey. Risk tolerance is the amount of loss an investor is willing to endure while making an investment decision. If you plan to buy, say, stocks, it’s vital to understand that you may lose some or all of your money. However, the greater the risk, the bigger the potential for reward in investment. Long-term financial goals are likely to make more money under asset categories with greater risk, like stocks or bonds.

8. Consider costs

Ensure your investment options will not attract large transaction costs or maintenance fees. Apart from offering substantial benefits to investors, some investments come with a lot of charges in the form of brokerage fees and commissions. For example, when investing in stocks, you’ll need a stockbroker who is licensed to operate on the Nairobi Securities Exchange (NSE). A stockbroker will levy brokerage charges on the transactions you will make. Its therefore important to know all the costs you might incur since they may add up to a substantial amount and eat into the overall investment.

9. Maintain discipline

Investing can sometimes be an emotional and challenging experience, what with all the ups and downs of the market, coupled with panic-inducing coverage from the media that may be sensational. Investing, especially for long-term goals, needs discipline, patience and the right mindset and strategies. Try not to be swayed by market trends and fads or succumb to pressure. Social media, especially, is full of loud pundits who give varying opinions about the markets. It’s advisable to take their advice with a pinch of salt unless it’s verified information.