You invest because you’ve made a calculated decision that the time it takes to learn how to invest and the money it costs to start to invest is time and money well-spent. Although every investment can either go up or down, you invest because you believe in the promise that the money you sacrifice today will return to you in the future multiplied many times over.
Find Reasons to Believe
When deciding on an investment, try to understand why it’s a valuable investment.
Should you, for example, invest in gold? Yes, if you have good reasons to believe that it’s a good investment.
A TreasuryVault article, 10 Reasons Why Gold Is A More Valuable Portfolio Holding Than Ever, explains why people should think about buying gold despite the facts that it’s a less popular type of investment. “The typical portfolio is loaded up primarily with a combination of stocks and some form of fixed income investments, like bonds. Alternative investments, such as gold, are far less common. But that needs to change. There are 10 reasons why gold is a more valuable portfolio holding than ever before.” The article then goes on to list compelling reasons why you should buy gold.
Unless you have strong reasons to believe that the investment you’re interested in is a great one, you will not start your investment career in the right way. What you invest in and how you invest makes all the difference as to whether or not the promise of future wealth is fulfilled.
It’s also a mistake to assume that one investment is superior to another. Yes, that might be true on the surface, one market may be larger than another, but beneath the surface, your interest will determine your rate of success.
Let’s take FOREX vs. real estate, for example. You could say that FOREX is superior. Since the leverage power is enormous and you can quickly enter and exit all kinds of foreign currency markets quickly, you could make faster returns on your money. However, if you happen to be good at real estate because, say, you come from a long line of landowners and you’re familiar with how to find a good property, negotiate the best prices, and buy low and sell high, then you will probably make more money at it compared to starting afresh with FOREX.
Stacking the Odds in Your Favor
Since investments can either do well or do poorly, isn’t investing something of a gamble? Although this is a common reason given by people who are reluctant to invest, it’s not true to say that investing is based on blind optimism. While it is true that the money you invest in might be lost, you can. in fact, stack the odds in your favor by acquiring two kinds of knowledge: subjective and objective knowledge.
1. Subjective knowledge. Your investment beliefs will have a huge impact on how well you do as an investor. You need to assess your comfort level. If you feel more comfortable with buying individual stocks rather than mutual funds, then buy stocks. Or, if you’ve successfully run a few small businesses, then you might feel comfortable with small business investments. The more comfortable you are with something, the better you will do with it. It’s the old story of playing to your strengths.
2. Objective knowledge. Why is Warren Buffett one of the most successful investors in history? You could argue that it’s because he is smart—but there are many smart investors who don’t do as well as he does. Is it his unique investment philosophy? However, this philosophy, which he learned from his mentor, Benjamin Graham, is not a secret. Many people read Benjamin Graham’s 1949 book, The Intelligent Investor, but not everyone who read and applied it became as wealthy as Buffett. The reason Buffett is one of the richest people on earth is that he really knows his stuff. He not only has a deep understanding of the fundamental principles of investments, but he conducted intensive research into every one of his companies (now more than 60) before investing.
In summary, to do well as an investor, you need to have good reasons to believe in your choice of investment, define a good investment by your subjective yardstick, and stack the odds in your favor by acquiring subjective and objective knowledge.