Expert advice

Dec 18, 2014,18.30 IST

4 different stages of investing: Which stage are you in?

Ramalingam K

Let us think of the moment when we first began learning a car. What things come to mind thinking about first learning to drive a car, or any vehicle for that matter?

Cautiously braking, keeping a close watch at the speedometer, very awkwardly raising your speed, and feeling anxious to merge into the freeway.

These were a few things that made you gain mastery over the task. Now, as you have achieved the desired skill-set, you can do all these tasks unconsciously while listening to music or even putting up your make-up.Thus, driving changed from a conscious process to something that you can do competently and with the skill-set gained, without requiring much effort.

Reading all this, you must be wondering why am I sharing all this when I should be talking about learning the steps for building a strong investment portfolio. Profitable investing, I believe, is not an unresolved mystery anymore. It is a process similar to learning any common activity like an infant learning to walk, a child to ride a bicycle, or an adult to drive a car. Let us now understand each of the four stages in making a consistent and profitable investment, and things to do and learn to reach the next profitability stage.

Unconscious incompetence:
At this initial stage,one is not aware of his incompetence. To understand better, you may not know about what you do not know. Therefore, at this level everything may seem new to a beginner as so much of it is unexplored and unknown. This may cause a lot of anxiousness as well as failure risks. Usually, anxiety may cause easy reliance on others’ investment advice.

As unconsciously incompetent, you may have no particular investment plan, irregular profits, or even suffer losses at times. Thus, this stage can be marked with little concept of being on the path of wealth. Statistical evidences show that a good number of investing population, i.e. around 60-80% are stuck here at stage 1.In short, this stage can be precisely described as financially obvious.

Conscious incompetence:
In this stage, one learns enough to know about his/her incompetence. This is the first step towards passive investing, and realization of the fact that there is so much more to becoming consistently profitable. You may aspire to create wealth, as well as play the game of getting financial freedom. However, a strong knowledge base, investment skills and risk management are still missing from your game plan.

At this stage, you may not understand what causes profits and losses in your portfolio with the changing times. This might let you put the blame on things such as the tough market conditions prevailing, your broker’s investment advice, or any other causes outside your domain. This stage makes your entry to the road to wealth, still having lots to learn.

Conscious competence:
At this stage too, you are still a learner not a master. You know enough of the investing game to be comfortable in the same. However, there is still a lot to work on. This stage may be accompanied by a solid investment plan, and its execution as well. It is based on proven principles leading to success. Still, your approach is not grounded in risk management, and the plan complexities are still left to gain expertise in. This may cause faults and losses occasionally. These occasional and unexpected hiccups may be disturbing, and point to a higher knowledge level that can turn out to be consistently profitable.

Unconscious competence:
This is the final stage of gaining knowledge. Here, you have a competence subject knowledge that it may become your new comfort zone. Investing here is primarily an administrative task. Here, you need other’s advice only for getting factual investment information rather than establishing your base on the same. You may become really financially independent by this stage, regardless of your current net worth.We can characterize this stage with someone knowing the complexities of investment strategies. By this stage, you have mastered the risk management skills and can go ahead creating a consistent and profitable portfolio. Wealth, here may be just a matter of time.

The above-mentioned step-by-step process can lead one to become a more consistent and profitable financial investor. One should base his/herwealth-plan on verified and grounded investment techniques, in order to confirm their goals and values.
Take time to check, which stage of investing are you in and what is the next stage. Continuously and consciously take your next step to the next stage.

The author is Ramalingam K, CFP CM is the Chief Financial Planner at, a leading Financial Planning and Wealth Management company.

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