The term investment is a very broad term and may not be easily comprehend just like any other subject. Investments also do not have a definite definition because people use it at different levels and on different situations. How warren buffet, the richest investor in the American stock market will define investment will be different from how a man on the street will define it.
Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in form of interest, income, or appreciation of the instrument.
Many people knew of the 80/20 rule also known as the principle of least efforts originated by the Italian economist Vilfredo Pareto in 1897. The rule says 80{5579a4f790a1703f03f9e8973666cfa8cd3511cf74edb6fd520545ba0854a635} of our success comes from 20{5579a4f790a1703f03f9e8973666cfa8cd3511cf74edb6fd520545ba0854a635} of our efforts. This rule is very real but not so real in the world of money and investment.
In the world of investment it’s 90/10 rule. In other words, 10{5579a4f790a1703f03f9e8973666cfa8cd3511cf74edb6fd520545ba0854a635} of people make 90{5579a4f790a1703f03f9e8973666cfa8cd3511cf74edb6fd520545ba0854a635} of the money. In the world of movies, 10{5579a4f790a1703f03f9e8973666cfa8cd3511cf74edb6fd520545ba0854a635} of actors make 90{5579a4f790a1703f03f9e8973666cfa8cd3511cf74edb6fd520545ba0854a635} of the money. Also in the world of athletes, 90{5579a4f790a1703f03f9e8973666cfa8cd3511cf74edb6fd520545ba0854a635} of the money is made by 10{5579a4f790a1703f03f9e8973666cfa8cd3511cf74edb6fd520545ba0854a635} of the people, and same applies to the world of musicians.
This is to say that most people that say or think they are investors are only gamblers or speculators. All they do is invest due to a hot tip by maybe a financial magazine or from a radio presenter. It is called buy, hold, and pray. This is why we often hear of so many high income people such as lawyers, doctors, rock stars, and professional athletes losing money in less-than sound investments.
They have the money alright, but they lack the sophistication of investing. In other words, they have the money but don’t know how to invest it safely and for high returns. All they see is deals that looks the same to them but they can’t differentiate between a good investment and a bad one. It’s advisable for such people to hire a professional money manager they trust to invest on their behalf.
According to Robert T. Kiyosaki, author of Rich Dad Poor Dad, to become a good investor or to really understand investment, one has to possess what he termed as the three “3-Es”.
The “3-Es” are:
1. Education
2. Experience
3. Excessive cash
For you to have the above three, you have to pay a price, and the price is time. Yes, it takes time to be educated, it takes time to have experience and to have excessive cash except through inheritance.
However, in any field you choose to invest your money, it may be in stocks, bonds, mutual funds, insurance, commodities, collectibles, precious metal, real estate, etc, always remember that there will always be ups and downs and like gambling, investing can be a very emotional roller-coaster ride.
So when you invest, know where the market is going, and focus on reaching your final target. Don’t get flustered when you see major fluctuations in the market. Investing can be very emotional and sometimes entertaining. Just buckle up and enjoy the ride.
