Part 1: INTRODUCTION.
Everyone wants to be financially free. Most people want to Independent of the lifestyle of living from hand to mouth now and in the future. Investment is a particular aspect of this. Investment is sacrificing present consumption for future benefits. That is, denying yourself something precious now so that the days of the future will not be so hard on you. In his book, Rich dad, poor dad, Robert Kiyosaki, a well known real estate investor, contrasts two critical men in his life. One was his father, an academician who believed education and school is a sure roadmap to success, a.k.a the Poor Dad. In contrast, his friend’s father was a good businessman who had several enterprises and continually grew his net -worth. They were both investors, but the fruits born by their investments told the kind of investors they were.
Investment is part of the cycle of life. It is everywhere. A wise investment, however, is what makes the few standouts from the crowd. In Christendom, even God himself made an investment when the second personality of the Godhead forsook his divine form and literally came down to earth. He was incarnated as a human being by the name Jesus and underwent all human sufferings and experiences being both God and man. In his thirty-third year, he died a sacrificial death so that he might reconcile humanity, God’s most prized possession to its creator God himself. The returns were that through the life and voluntary death of Christ; innumerable souls have found peace and reconciliation with their maker. One act accomplished 2000 years ago that is still effective today.
Another example is human beings. From childhood, we invest our time in school to get knowledge. Afterward, some spend their time to work for other individuals to earn wage income. Some decide to venture into business, investing their time and money to provide a commodity society needs in exchange for payment. As you can see, investment is an integral part of life. We cannot do without it. Consciously or otherwise, we all engage in it, and we yield returns. We reap what we sow. What we put in, we get out. Investment incurs a cost. There is a cost of uncertainty where we are not sure if the outcome will be beneficial or damaging. This cost is referred to as risk. The higher the risk, the higher the returns. It’s only wise, therefore, to take calculated risks and get higher returns.
Most people invest there time primarily, but those who invest their money yield higher returns as the risk associated is higher in the latter. With the diversity existent in modern times, there are a variety of investment vehicles to put your money to good use. Money works. When it does, it yields interest. The rate of interest is dependent on the investment avenue chosen and the risk associated with it. The ‘safe’ way of mattress banking yields no real returns. An actual bank will pay interest that’s a function of the current market rate. These are the main ways the majority of individuals keep their money. However, it’s more prudent to put it to use. To invest, we have to understand a term known as leveraging. The general definition is to use a commodity to your maximum possible advantage. Mattress banking is, therefore, not a leveraged way of keeping money. Banks are also out as the rate of interest earned is low compared to if you would use investment vehicles such as Fixed income securities, the capital markets, or the money markets. (We’ll talk more about them in a future article).
In conclusion, we can define a good investment as a returns-seeking endeavor with a leveraged input for the generation of maximum absolute returns. For an investment to be practical and sound in the long run, the investor should ensure that the resources used, mainly being time and money, have been used in a kind of way that the outcome will be the best. An investor must “Begin with the end in mind,” (Dr. Covey’s 2nd habit of highly effective people ) to generate the best returns. In the next piece in this series, we’ll talk about real investment, which is an investment in tangible assets, e.g., property, cars, businesses, etc.
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