Investing 101
Lets start with the basics!
What is Investing? Here is a definition I like from Investopedia – What is an investment?
In simple terms, if you spend every dollar on your current wants and needs, you will always be in a vicious cycle. The only way to keep this going, is to hope that your increase your income every single year, and this neither practical or a comfortable way of securing your future.
A better way, is to “invest” a portion of your savings (the money you put aside), into an asset of some kind (shares in a public company, real estate, bonds, etc.) with the aim of selling it for a much higher price at a later date, and/or generate income from this asset over time. This will help you break out of the vicious cycle, and secure a comfortable financial future for you and your loved ones, just like I have been able to do so over the last three decades.
And while this may be surprising to hear, if you keep it simple, it is quite straightforward, but it takes discipline, and in fact, a few more things (remember D.O.P.E, no, not that kind), and we will dig deeper into each of these topics in the near future:
Discipline – stay the course, and don’t freak out in a crazy market or economy (easier said than done)
Ownership – you own it, whether that is an unbelievable 50% gain in 1 year OR a 30% loss in 2 months
Persistence – keep learning, stay curious, and keep investing regularly. Time in market is better than Timing the market
Exit Strategy – have one BEFORE you invest, and have rules in place on when you will exit the investment
So, I am sure you are thinking to yourself – “hey I have some money saved, I got a bonus recently, can I invest it now? can I buy that “hot stock” someone told me about?” Hold your horses! I had the same questions three decades ago, and I will share this advice that I received at the time from someone smarter than me (at the time of course!).
Before you put money into investments, whether this is stocks, bonds, or real estate, first you need to have a RAINY DAY FUND! What is that you ask? Great, lets explore this first…RAINY DAY FUND