Is it worth investing?
For me, the answer to this question is obvious – “Yes, it’s worth it”. And now I’ll explain why.
Let’s formulate the main investment goals:
Creating a financial airbag, i.e. some kind of cash reserve in case of unforeseen situations (illness, car repairs, and other expenses that may occur suddenly and cause a significant blow to financial stability). The size of this stock is different for each person, because both expenses and requests differ. Read more about the savings account that you can use to store your financial cushion in our special article.
The increase in financial security. It’s no secret that no matter how much money is available, you still need a little more. As income increases, so do needs. The desire for a decent and secure life is normal. Therefore, the ability to properly manage any income is a very valuable skill that you need to learn.
A better definition, in my opinion, belongs to Benjamin Graham , the man who was called his teacher by the world’s richest and most famous investor, Warren Buffett:
“An investment is an operation that after careful analysis assumes the safety of fixed capital and a satisfactory income”
Benjamin Graham, “The Intelligent Investor”.
Why do I need to know the principles of investing?
You can try to understand everything yourself-to study the situation in the economy, the stock market, to study the financial statements of companies, etc. And based on these conclusions, you can invest in those securities or assets that you think will show a higher-than-market return. In other words, it is higher than the yield of generally recognized market indices (Dow Jones, S&P 500, NASDAQ.). Some investors manage to do this.
However, it is very difficult to show such a result over a long period of time. In addition, you need to understand that this approach to investing will require some effort, knowledge and a lot of free time to analyze the market situation, company reporting, etc.
What types of investments are there? Is it worth investing?
Diversity of investments
• By type of investment:
* equity investments
* debt investments
• By investment recipient:
• government agencies
• The registration of the investment:
• the contractual relationship
• By type of transferred asset:
• financial asset
• tangible asset
• intangible asset
* On responsibility for decision-making:
* independent investments
* investments through financial intermediaries
As you can see, the above divisions of investments into groups are like pieces of a puzzle that can be joined together in different ways. For example:
* equity investments + securities + independent investments = shares, Depositary receipts
* debt investments + securities + independent investments = bonds, promissory notes, certificates of Deposit
* equity investments + securities + financial intermediaries = mutual Funds
* debt investments + contractual relationships + financial intermediaries = Bank deposits
• and so on
These classifications do not exhaust the possibilities of the investment world. After all, I have given only the main options, and each of the groups can be divided into many smaller ones. For example, I have already written about different types of securities or different types of financial intermediaries. As you become more interested in investing, you will see an increasing variety of investment opportunities.
Estate investment. Is it worth investing?
For example, if you take up real estate, you will find out that real estate objects are different:
• by purpose: residential and commercial, the objects of which, in turn, are divided into office, warehouse, retail, etc.
• by price category: mass or elite real estate.
• by location: urban, suburban, foreign; usually a more detailed division is used, for example, for a city it is “center”, residential areas, industrial zones, recreation areas, etc.
• as of: ready for use, under construction, requiring major repairs, requiring finishing, etc.
* based on materials: brick, monolith, panel, etc – – for city houses; brick, timber, log, panel houses, etc. – for country houses.
• by time of construction, by area, by number of rooms, by number of storeys, by distance from transport hubs.
Also, real estate differs by the purpose of acquisition – for subsequent resale or lease, by the method of acquisition from the developer and its agents, or on the secondary market.
If you decide to trade stocks, you will soon find out that stocks are different from each other:
• according to type: ordinary and preferred
* by liquidity: “blue chips”, “second tier”, “third tier”
• by industry: oil industry, metallurgy, Telecom, banking, retail, etc.
• by method of acquisition: on the primary market (in the course of a public or private placement) or on the secondary market (which, in turn, is divided into exchange and OTC)
Decisions about buying shares can be made on the basis of fundamental or technical analysis (and there is a huge sea of approaches there). You will have to choose between trading strategies – portfolio investments, intraday, inter-day or medium-term speculation, scalping, arbitrage, etc.
If you decide to give your money to mutual Funds, you will learn that mutual Funds differ:
• by type: open, closed, and interval
• by category: equity funds, bond funds, mixed funds, real estate funds (rental and development), index funds, funds of funds, money market funds, venture capital funds, mortgage funds and other types of funds; and there are also industry funds, funds of “second-tier” and “junk bonds” shares and other exotics.
• by the method of charging remuneration for investment management
• by the amount of fees charged
• by the size of the minimum investment amount
* by distribution method: traded and non-traded funds, funds sold through agents, etc.
You will find a similar sea of various possibilities when you try to put money in trust or when choosing a pension Fund, when choosing bonds or when opening a Bank Deposit.
It is clear that I am not writing all this for memorization. I want to show you that there are a lot of investments around. Beginners usually find it a challenge to find affordable investment options. In fact, finding an investment is not a problem. For an experienced investor, the available investment options are no less than the products in a huge supermarket – your eyes run away, go and choose what you like best.
And when you understand this (and I hope you have already), you will begin to look at this splendor of investment opportunities with completely different eyes. And ask a better question:
As among the available investment opportunities choose what you need?
To this question we need to look simultaneously from two sides:
1. What INVESTMENT characteristics you need to pay attention?
2. what features of the INVESTOR should you pay attention to?
Let’s start with the investment characteristics.
So, what characteristics of investments should you pay attention to?
How much can you earn on this? Perhaps that is the question investors are asking in the first place.
It is good if investors pay attention to other characteristics before investing money. Otherwise, the chances of giving money to the organizers of financial pyramids and other scammers and crooks increase dramatically. They are the ones who like to promise sky-high interest rates, and then disappear with your money.
How quickly, if need be, it will be possible to transfer assets in the form of money? What will be the losses in the case of an urgent sale of assets?
What is the probability of incurring losses by losing the investment or part of the investment? The question is no less important than the question of profitability. There are a lot of possible risks, they need to be understood, and they need to be considered together with the potential return on investment.
I will not dwell here on the analysis of the characteristics of “yield”, “risk” and “liquidity”, since it is quite possible to organize a separate seminar on each of these topics. These characteristics are covered in the “Yield, liquidity” and ” Risk. Risk management “course” personal Finance Management. If you want to learn more about the selection of assets based on the specified characteristics, I recommend the ULF course and the specified blocks.
Often, when considering, they are limited to the above three characteristics. However, the investor may be interested in other equally important features.
Can information about you, as the owner of assets, become available to those people from whose eyes you are trying to hide it?
Will you be able to quickly access information about the current structure and value of your investment? Or will it be impossible to get the information you need?
• Labor intensity
How much time and effort will it take to acquire and sell assets, as well as generate income from investments?
• And other characteristics
But there is another criterion, the importance of which is not understood by everyone. However, in terms of importance, I would put it first:
* Meeting the individual needs of the investor