Many persons think that investments are mega money-making deals that can only be carried out by wealthy individuals such as financier Michael Lee Chin or hotelier Gordon ‘Butch’ Stewart. It’s also commonly believed that investing involves very technical and complex financial transactions that are outside of the understanding of the average person.
These mistaken notions often lead persons to become intimidated by the thought of investing, and this unfounded fear often prevents them from creating wealth with the use of solid investments. The reality is that once you have a desire to learn about investing, it is possible to find out all you need to know to become a competent and successful investor.
My personal experience offers living proof that anyone, regardless of background, education, age, or sophistication, can figure out the intricacies of investing. Just over 10 years ago I had no idea that there was even as concept called investing; in fact, I didn’t even practise the simple habit of saving my money.
Prior to 2001, my understanding of the art and science of dealing with money was very basic – money was simply meant to be spent. Despite having a university degree in management, I was completely inept at managing my finances; I had never considered that there were more important uses for money than just to facilitate frivolous consumption.
A new world of investing
It wasn’t until I got a job at a leading financial institution that I realised that I had been making all the wrong moves with money for the first ten years of my working life. After I entered this exciting new world where investment transactions became a regular part of my life, I became intrigued to find out all I could about the wonders of investing.
As I have recommended in previous columns, you can discover practically anything you want to know about money by carrying out research using books, magazines or the Internet. You can also receive useful information from listening to CDs, watching DVDs, attending seminars and speaking to experts in the subjects of your interest.
With my keen desire to learn, I amassed a wealth of information about investing and eventually received a part-time job lecturing others about the topic. So even if you are completely ignorant about investing right now, be encouraged that it is entirely possible for you to become quite proficient in the area, with a little effort and a lot of determination.
Starting today, I will attempt to debunk some of the myths and uncover many of the mysteries surrounding the topic of investing.
We are all investors
One dictionary definition states that you can invest by putting your money into some endeavour in order to receive a profit. The idea is that you are choosing to forgo immediate consumption of your money in exchange for a desired gain in the future. With this down-to-earth perspective on investing, you will realise that we are really all investors in different areas in our lives.
There are many ordinary ways in which people invest with the hope of receiving a potentially profitable outcome. Most parents invest money, time and love in their children with the hope that they will become independent adults; farmers invest money, time and energy into nurturing their crops; students invest money, time and hard work to get a higher education.
Investors have similar intentions; they hope that if they commit their money, and sometimes their time and effort, into some type of project or product, it will lead to an increase in their wealth over time. People can invest in property, business ventures, physical products, or even by lending money to others.
What is an investment?
An investment or an asset is anything that is bought now with an expectation that in the future it will increase in value, or supply a steady source of income. Robert Kiyosaki, bestselling author of Rich Dad Poor Dad, gives a simple definition of an asset; it is anything that puts money into your pocket. Therefore, when you invest your money you are hoping to make a profit and earn more money.
While practically anything can be an investment given this definition, financial investments have very specific features. Very often, you will hear or see the term ‘securities’ in reference to investments. A security is a type of investment instrument that has an expressed value which represents an investor’s claim over certain assets or a future income stream.
Securities are usually negotiable between different entities and/or individuals, which means that they can be bought and sold with relative ease. They may be evidenced by a physical certificate, or they may just be noted in an electronic record. Not all investments are called securities, and what is legally classified as a security is dependent on a country’s regulatory laws and structure.
Next week we will look more closely at financial securities and the different markets where investors can buy and sell them.
Copyright © 2011 Cherryl Hanson Simpson. No reproduction without written consent.
Originally published in The Daily Observer, August 11, 2011
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Cherryl is a financial consultant and coach, founder of Financially S.M.A.R.T. Services. See more of her work at www.financiallyfreenetwork.com and www.financiallysmartonline.com. Contact Cherryl