Fundamentals of Investing? Breaking the myths regarding Investments
Before we get directly into the investment part, we are going to start with some of the fundamentals of investment: what investment is and what it is not.
- Investing is not gambling
- Power of compounding
- Only invest with extra money
1. Investing is not gambling know the difference
- Investing is based on research. Eg: Reading companies early reports to evaluate risks and make decisions based upon financial growth and capability to invest.
- Long term game and gains
- Objective and goal are to generate sustainable income over the years. Hardwork and lots of patience are needed to be able to do that
- Risks come from not knowing what you are doing.
- It means we are investing in a business and business is supporting stock prices.
- We can keep track of the business movement to make our investment decisions.
- Even if the business goes bankrupt, you will still be able to get back the money that you have invested, either a portion or all of it, depending on the company’s regulations.
- When you know what you are doing you can minimize the risks with the right strategy and do the right thing.
- Gambling is based on luck (Without doing any research, it is considered gambling because it is fully based on wants and emotions.) [Even if the investment is done without research, it is a form of gambling.]
- Expects quick game and gains
- For people who want money in short term period
- There are higher risks involved because it is purely buying with numbers
- It is totally randomized and you might have any chances of getting back money you lost in gambling or trading
- Therefore, there is no difference between trading stocks or gambling because both expects quick returns and has higher risk and both does not require much research (Only difference is that one is done in casino and other is done in stock market)
Change the mindset to not think of investing as gambling because there is a huge difference.
“Investment is to accumulate wealth and wealth needs time to accumulate.”
- Save at least 3-6 months of living expenses for emergency purposes and only invest with extra money.
- Investing is a long journey; your money will stay invested to maximize the compounding effect (For compounding, we need to re-invest again and again)
- Once we invest our money, we will not be/never be able to take it out in a short period of time
Conclusion:
Investing is SIMPLE but not EASY.
#investment #gambling #valueinvesting #money #financeoflife #finacialfreedom #financelearning #investing
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