• Investing 101

    Happy Phriday!!!

    When you hear the word invest, what do you think about? Typically I hear people use the term as a substitute for buying something, like, "I'm going to invest in a pair of shoes" or "I think I'll invest in a new PS5". There is nothing wrong with these purchases, assuming you have the money, but they are not investments. So, let's talk investing 101.

    The word invest, as defined by Google, means, "expend money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture." In short, it's giving something (in this case money) with the expectation to receive back what you gave plus more (profit) at a later date.

    Probably the # 1 rule when it comes to investing, the key to investing 101, is money is made at the BUY. To restate it a different way, to invest well you make money when you buy, NOT sell. This may seem strange, but it applies to almost any financial investment - mutual funds, stocks, bonds, real estate, a business etc. 

    Why? Well let's look at an example. If you were looking to invest in a home and it was priced at $100K you may assume that's how much it's worth. WRONG! The cost of the home and what the home is worth are different. The market, in this case similar homes in the area, decide the worth of the home. So if the market shows the home is worth $80K, but it cost $100K to purchase this would be a bad investment even if you had $100K cash to buy it.

    If the same home is worth $100K but was selling and purchased for $80K this would be considered a good investment. Why? Because it encompasses our # 1 rule, money was made at the buy. Do you see it? If you were to sell the house you just bought at $80K (what it cost) for $100K (what it's worth) you would gross $20K. That means no matter what you do with the home, even if it's a shack, if the numbers stay the same you made money once you bought the house.

    Instead of diving into investing do some homework and understanding what is under priced so you can invest well in whatever you choose to invest in. It takes work and is probably a good idea to seek counsel from professionals who have integrity and can teach if you are not comfortable investing. Please choose Faith over Fear for your Finances and remember the #1 rule of investing so you can invest successfully.

    Picture credit: here 

    Post a Comment





    +1 785-430-6312