Ten Steps to Successful Investing

Published: June 29, 2016 at 10:03 am

Last Updated on December 18, 2021 at 10:30 pm

Here are ten steps that could aid successful Investing. I strongly recommend going over these steps before considering any investment.

“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” It is disputed whether Abraham Lincoln actually said those words. Nevertheless, it is a great quote.

Too many investors are in a hurry to invest. They suddenly realise the time lost or the unsuitable products they hold and are desperate to invest in one that would give “better/good returns”. Sorry to be a wet blanket, but there is no hurry to invest!

Sorry to be a wet blanket, but there is no hurry to invest! There is a lot more to be done beforehand.


Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

Regular freefincal readers who value goal-based investing may find the following a bit too familiar. I n any case, please do consider sharing this post with the floating buttons on the right.

Step 1.Why am I investing?  Aka what is the goal? I have seen so many people declare that they want to invest but don’t have a goal! I fail to see how that is possible unless they have oodles of wealth. Retirement is a goal by default and is the topmost in the priority list.

Step 2: When do I need the money?  The time remaining is the single most important factor that determines whether a particular instrument is suitable or not. So it helps to be precise about the duration.

Step 3: What is the target corpus? If I have a goal in the future, I can estimate what it costs today. Then with a reasonable inflation percentage calculate the target corpus during the year I need the money.

Step 4: Choose appropriate benchmarks. For goals that are at least 10 years away, inflation is the benchmark. A portfolio (not just one financial instrument) should be able to beat inflation for such long-term goals after tax. The amount we invest is also important to achieve the target corpus.

For intermediate-term goals (5-10 years away), the benchmark is difficult to choose! If we focus on inflation, we may end up taking too much risk. If we focus on capital protection then we may end up paying too much tax or end up short due to inflation! So it boils down to personal comfort here. Not easy for a beginner to plan these.

For short-term goals (less than 5 Y away), we can ignore inflation and stick with the comforts of fixed income instruments. Why? Read more: Equity investing: How to define ‘long-term’ and ‘short-term’

Step 5: What asset class do I need to achieve the target corpus, given the time that I have? Once the benchmarks are clear, the asset classes should be clear with some caveats:

  • Gold is a dud investment that offers risk more than stocks, but rewards like a fixed deposit (after tax).
  • Real estate requires ‘know-how’ and lot of starting capital.

So this leaves equity and fixed income (for many).

Pc credit: Danyal saeed
Picture credit: Danyal saeed

Step 6: What return can I expect from the asset classes chosen? This is a key step because it requires knowledge of how asset classes operate.

For example, it is reasonable to expect equity produces returns that are close to or even a bit lower than how the GDP has grown over 5,10,15 years (depending on the duration that we have in mind).

Fixed income returns depend on the overall health of the economy and this is hard to predict over the long-term. Post-tax 6-7% is a reasonable expectation for the next 5-10 years. Beyond that is hard to imagine.

In the case of volatile instruments like equity, past risk is also important. For me, past performance = past risk. Read more:

What Return Can I Expect From Equity Over the Long-term? Part 1

What Return Can I Expect From Equity Over the Long-term? Part 2

A return of 14% +/-4% is what the ‘past’ suggests. So I am happy with expecting 10% from equity (so do a group 50+ investors who met for a discussion meeting on Sunday last at Chennai!).

There are many who think, “equity mutual funds have given 17-18% returns in the past, and that is what I will expect in the future”. oh dear!

Step 7: How much of each asset class should I choose? We have decided the asset classes to choose and how much return to expect from them (post-tax). The next step is to decide how to build a portfolio with this information.

Suppose we expect 10% (post-tax) from equity and 6% (post-tax) from fixed income, we can mix them up in different ways depending on the need.

For a 10+ year goal: 60%-70% can be in equity.

For a 5-10Y goal: Anywhere between 0%-40% equity depending on comfort level.

For a 0-5Y goal: 0%-20% equity.

Suppose we have a 10+Y goal and decide to have 70% equity. The asset allocation then is 70:30.

(70% equity x 10% return) +

(30% fixed income x 6% return)

This gives 8.8% or about 9% as the post-tax portfolio return. Notice now we have personalised benchmarks for the portfolio and each asset class.

Step 8: What kind of investor am I? Have I used volatile instruments like equity before? Or have I stuck to the comfort of fixed income?

Can I stomach 60% or 70% equity for a long-term goal even if my goal requires it?

Am I investing on my own volition understanding all risks or with borrowed condition?

Step 7 is the amount of volatility necessary for the portfolio.

Step 8 is the amount of volatility that can be tolerated.

Effective reconciliation between these two steps is key to investing success. Those who are not comfortable with large amounts of equity can start small and increase it over the years. This is what I did, and I can assure you that appetite for volatility can increase slowly. This is healthy in more ways than one.

Step 9: Decide investment categories. Now that  asset classes and their proportions are decided, we can consider the categories available in each asset class.

Should I choose just equity mutual funds or have some stocks too? Should I use fixed deposits or debt mutual funds?

This depends on comfort level, understanding of the product and associated taxation.

Then, what kind of stocks to buy or what kind of mutual funds categories to choose?

Many ways to do this. Would suggest to focus on a minimalist portfolio.

Related posts:

  • How to select mutual fund categories suitable for your financial goals?

Step 10: Which instrument should I choose? Finally!

Goal–>benchmark–>asset class–> portfolio –> Categories–> instrument.

Some related reading:

How to select an equity mutual fund in 30 minutes!

How to choose debt mutual funds with no credit risk and low volatility

Those are the 10 steps to follow before choose a financial instrument. Periodic review and management is necessary after investing has begun:

How to review a mutual fund portfolio

How to Review Your Mutual Fund SIPs

Simple Steps to De-risk Your Investment Portfolio

Basics of Personal Portfolio Management

How to Rebalance Your Investment Portfolio

If you have reached up to this point, thank you! Do let me know if I have left out anything.

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.
🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)