My Investment Philosophy
An investment leverages knowledge and money that you currently own to generate even more money. This can become a steady recurring income where we try to take a chunk of money an spread it into a recurring stream.
An ideal investment should not require a lot of time. Beyond the initial research and set up, an investment should be able to run with little supervision and produce returns.
The things in this article are my ideas and philosophy, you can check Investopedia for more structured information.
Over the past couple years, I have given a lot of thought to investment and I have come up with several thoughts on a good way to go about it. This post is for anyone that is interested in investing. Let’s share ideas. You can leave a comment or contact me directly to talk about this.
I will continue to update this post as I learn more.
What separates an investment from a business
TIME. If you need to spend a considerable amount of time overseeing and working on it, it’s a business and not an investment.
For this reason, things like short-term forex, cryptocurrency or stock trading is not an investment if you’re doing it yourself. You’d have to read and stay on top of trends and spend quite a number of hours each day monitoring it. It is more of a business than an investment.
How much risk to take
As little as possible.
While risk is directly proportional to possible gains, a smart investor will only invest in things that he/she has enough knowledge in to minimize the risks involved.
For example, a farmer will better be able to judge any investment opportunities in the agricultural sector. If he/she decides to invest in agriculture, they’ll be able to take less risk than the average individual.
So, we should not invest in anything that we don’t understand. There are lots of opportunities in the fields you’re already familiar with.
How much gain to target
Any value greater than the current inflation.
Because inflation reduces the value of money over time, if your saving or investment makes returns that are below the rate of inflation, you’re losing money over time. You’d be better served spending that money immediately.
Beyond beating inflation, the amount of gains being targeted depends on your goal.
- If the investment just matches up with inflation, which should be a very safe investment, then that can be used as a form of saving money.
- If the investment goes returns slightly more than the rate of inflation, which should still be relatively safe, it can be seen as a passive source of income.
- If the investment returns a lot more than the rate of inflation but is slightly risky, then it can be seen as a way to rapidly grow your funds.
Ideally, there should be several investments that span across multiple of these classes of investment. However, it is up to you to choose whichever makes the most sense for you at the time.
What to invest in
Things that you know a lot about. From your field, studies, hobbies, passions, e.t.c.
There are a lot of opportunities in every sector. Don’t be greedy. A fool and his money are soon parted. Stick to things you understand.
Whenever you need to veer into a field that you don’t have enough knowledge about, make sure to spend A LOT of time doing research and educating yourself before you start putting money in it. Also realize that due to limited knowledge and experience, the risk is even higher than usual. Make sure the gains match up to the risk.
The end goal of investing
For me, the end goal is to get to a stage where the returns(after inflation) on my investments are enough to cover my basic expenses.
At that point, there is no more pressure to work for money, I can chase passions, take other risks, or “technically retire”.
This is a very rough post. I will clean it up an update it as time goes on. It will never be a finished article because I am still learning and gaining experience.
I really want to learn from everyone who’s reading this. So please leave a comment or contact me. Thank you.