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Fundamentals of Investing? Breaking the myths regarding Investments

Fundamentals of Investing? Breaking the myths regarding Investments

We are all aware of investment and we all know the importance of investment in today’s world. But still, there are some myths that some people in our society have regarding investment and being an investor. We are going to start a series of articles that are related to value investing, which will help you be a good value investor and will help with the way investment works and increase your money returns with a valuable profit. 
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.
For those who are new and are afraid of investments or have some myths regarding investing, here are 3 important points to keep in mind, which we are going to discuss.
  1. Investing is not gambling
  2. Power of compounding
  3. Only invest with extra money

1. Investing is not gambling know the difference
A few key points show below the difference between investing money and using money for gambling.
Investing:
  • 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.
Gamling:
  • 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.

2. Power of compounding
Let your money work for you while you sleep
Investment is all about letting our money work for us. So compounding effect is the way money will work for us.

Compounding effect?
It means the ability of an asset to generate earnings, which are then reinvested or remain invested with the goal of generating their own earning
In other words: generating earnings from previous earnings. We will be discussing compounding effects further in different feeds. You can follow us to get notified about the latest updates on finance

For reference, if you want to calculate the interest and check how the compounding effect works, you can use the interest calculator and check the interest rate here: calculator.net

“Investment is to accumulate wealth and wealth needs time to accumulate.”

Let your money do the work while at the same time working hard to earn more income morally and legally so that you can contribute more money to your investment portfolio and grow your investment faster.

3. Only Invest with Extra Money
  • 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
So, if we don’t have any backup for ourselves; we will definitely need to cash out the money from our investment, which is not what we want

Conclusion:
Investing is SIMPLE but not EASY.

#investment #gambling #valueinvesting #money #financeoflife #finacialfreedom #financelearning #investing
Last Updated: Jun 24, 2024
Tags: #investment #gambling #valueinvesting #money #financeoflife #finacialfreedom #financelearning #investing Category: Finance & Investment Learning Lifestyle
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