How to invest money in Sri Lanka

Forget everything you know (or don’t know) about investing.

Then give yourself a pat on the back for deciding to read this post. I’m serious. Do it. I can wait.

Here’s the thing. When it comes to investing, most of us got it wrong.

For starters, we think that investing is for high net worth individuals like Dhammika Perera. Or we think that we need a degree in Finance or have Rs.1 million lying around in our bank account. Some think just because they studied art, science, medicine, IT or engineering they are not cut out for investing. Do you really think all your management friends are investing? I don’t think even the management lecturers are investing!

If you are desperate to invest money in Sri Lanka but have no idea where to start, you have come to the right post. By the end of this post, you’ll be able to explain to a monkey how to invest money in Sri Lanka. I promise.

You can start by watching this video first.

What is investing?

Forget all the definitions you know about investing.

Investing is simply multiplying the income you earn. That’s it. Now go tell that to your finance lecturer!

Yes. People love to make things more complicating than they should be. Investing is acquiring different things (a.k.a assets) that will generate income for you in a future day. By investing, what you’re going to do is use the money you have to acquire and collect these “things” hoping that they would generate more money in the future.

So what are these things?

They can be anything from stocks, fixed deposits, savings accounts, unit trusts, gold, real estate, bonds, businesses, antiques, etc.

These assets generate money in two ways.

  • Capital gains – The value of an asset can increase over time. Imagine you buy stock for Rs.100. After 5 years if the value of that stock is Rs.700, you have earned Rs.600. That’s a capital gain. It’s the same if you buy a piece of land. After some time the value might increase. That’s capital gain.
  • Recurring earnings – Certain assets generate income constantly. This can be monthly, quarterly, biannually or annually. As an example, if you buy a stock for Rs.100, you might get a dividend of Rs.2 annually. Or imagine if you rented a house. You’re going to generate rent income each month.

In most assets usually, you will get capital gains as well as recurring earnings.

All you have to do is acquire different assets based on your preference (risk tolerance) and create a portfolio of assets. Clear? Good boy (or girl or uncle or aunty or monkey!)

Why invest your money?

None of this would matter if you’re not clear why you should invest your money. What is your WHY?

Warren Buffet once said you need to find a way to make money while you sleep. Otherwise, you’ll work till you die.

There are different WHYs for investing money. For most, it’s about making more money. For some, it’s about getting out of a corporate job. Some invest to have a secure retirement. Some invest money for emergencies. Some invest to buy a car or build a home. Some save to start their own business. Whatever is fine as long as it’s a strong WHY. I invest to gain financial freedom. Financial freedom for me is the ability to have peace of mind knowing that there is enough money invested somewhere so that whatever happens in my life, I’ll have enough money to take care of me and my family.

The idea is not to retire and party. But to have that peace of mind you get when you know that you have enough money invested somewhere. Grinding every day and living paycheck to paycheck sucks. Not knowing when your money would run out sucks. Feeling guilty to spend some money to buy something you love sucks. That’s why I invest. To create a rich life with peace of mind.

Who should invest money in Sri Lanka?

If you’re above 18 and if you’re breathing, you should invest. Period. (Legally Sri Lankans can’t invest before 18.)

It doesn’t matter if you studied art or fashion designing. It doesn’t matter if you’re a hairdresser or a pharmacist. It doesn’t matter if you didn’t learn about investing (neither did most of us!)

Starting to invest from a very young age is great. But it doesn’t mean that you can’t invest if you’re 30 or 40. Yes, you may have lost a lot because you didn’t start early but it doesn’t mean that you have to lose more. So start now.

How much should you invest first?

A good rule of thumb is investing 20% – 30% from your income. If you’re consistently investing a good chunk of your income each month, you will be sorted for life. Trust me on this one. But don’t beat yourself up if you can’t do it. Am I doing it? Well, I’m still trying to reach there.

If you have debts to pay and got other commitments, practically you can’t invest 20% – 30% from your income. That’s fine. Start with whatever the amount you’re comfortable. One of the notions we have in the investing world is you need to have a big amount to start investing. That’s B.S.

“I’m going to save Rs.1 million. Then I’m going to start investing.” If you’re in this camp, hate to tell you but that’s not the way things work. You need to first start investing Rs.1000 or Rs.5000 per month. With the help of time and compounding interest rate, eventually, you’ll end up with Rs. 1 million. That’s how the math works. Not the other way around.

How to invest your money in Sri Lanka?

This is the million rupee question. Knowing all this is great but how do you actually invest?

The first step is starting. Let me repeat it. The first step is STARTING.

I can’t emphasize how important this is. Most of us deep down know that we are supposed to save and invest. But why aren’t we doing it? Because we haven’t started. This is the most difficult step. Once you start and place a system, investing is a piece of cake.

Remember I told you that investing is about acquiring different assets that generate income in the future? Well, time to acquire some assets.

For a beginner, I would recommend starting with the stock market and unit trusts.

How to get started in the Colombo Stock Exchange?

First thing you should do is pick a stockbroker. If you have no idea how to do that, read this post. Once you are registered with a stockbroker, just buy anything for Rs.1000. Don’t go to analyze. Don’t worry about the market. Don’t worry about the economy. Just buy shares from any company for Rs.1000. Remember, your goal isn’t to make money now. Your goal is to START.

Watch this video where I teach you how to get started.

How to get started in unit trusts?

Second, you can invest a small amount in a unit trust. No idea what a unit trust is? Read this post. Then pick any unit trust from any company. Then invest the minimum amount they allow. Just do this to get a start.

Watch this video to get a headstart.

Your job is to start. Trust me. Once you start, you’ll be motivated to learn more. You’ll try to figure out different unit trusts. You’ll realize that some charge a higher management fee and some don’t. You’ll learn how the stock market works. None of this would happen until you start.

So that’s my challenge to you. Start.

If you want to start investing in Sri Lanka, we have practical workshop for you. It’s called Investing Essentials. To learn more and join the next workshop, click here.

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