Most people don’t spend much time wondering what money is. Their only major concern is how much they have, and how to get more!
What is money?
It is a medium of exchange.
What does it do?
It ensures the success of exchange by being the one item on offer that is ALWAYS acceptable.
Why is it necessary?
Because human beings must exchange to live together in peace, and to prosper!
On the other hand, without money, the production and exchange of anything but the most rudimentary goods and services is impossible. It is not difficult, or time consuming, or inefficient, it is IMPOSSIBLE!
Animals don’t exchange (or trade) amongst one another. They are self-sufficient, or they take from each other, or they exercise the prerogative of superior strength and/or cunning.
There are some human beings who get along in a very similar fashion, but the overwhelming majority recognise the benefits of voluntary exchange.
Strictly speaking, the use of the word “voluntary” in this context is redundant. The phrase “your money or your life” is not the precursor to an exchange, whether the person uttering it brandishes a gun or a government identity card!
The first rule of any voluntary exchange is simplicity itself. If two people are willing to exchange, each must view the results of the exchange as being beneficial. If either of them is not of that view, the exchange will not take place.
The ways to make money in this world are simple:
Marry someone who is already rich.
Have a rich person die and will you their money.
Win the lottery.
Rob a bank.
Work for it …
Or have it work for you through investments!
In investing, you don’t have to be an expert to take advantage of real opportunities!
But, in order to invest with confidence, profitable success and consistency and be able to take advantage of opportunities, first you should assure, that all your essential financial needs and responsibilities are met.
Then, start with:
1. Setting aside sufficient liquid funds for cases of emergency.
2. Making sure you are completely and adequately insured.
3. Building a reasonable retirement plan.
4. Getting out of debt — and staying out!
5. Determining your time frame, and
6. Start investing with the aim of becoming financially independent!
As each of us enters different stages of life, our changing family status and objectives, incomes, expenses and living standards shape our investment strategy.
By having a clear idea of what you want your investment to accomplish, you’ll be able to put your money to work more productively.
Investing is generally defined as the conversion of risk-free assets into risky ones with prospects of greater return.
Every investment has a certain amount of risk associated with it. You can minimize risk, if you are able to understand the different characteristics of the various investments and build your portfolio accordingly.
Given the existence of risk, why invest at all?
Because historically, the existence of greater risk is commensurate with greater rewards for investors.
You are almost certain to pick a bad investment sometime. The secret then is to cut your loss as soon as possible.
Unfortunately, most people find this very difficult to do. No one likes to think that he has made a mistake and there is a big temptation to hold on and hope for better days.
But there is almost always a time when an investment starts to turn sour that you can get out with only a small loss.
If you hold on you could be on the losing side for many years and then lose even more money in the end.
Having the courage to admit that you were wrong is an essential technique of successful investment as well as in other aspects of life.
A Swiss banker put it rather well:
“If you are losing a tug-of-war with a lion, give him the rope before he gets your arm …
You can always buy a new rope.”