Mind Your Own Business
Do you mind your own business? Do you take care of your finances on your own? Or do you expect others to take care of them for you? When we expect our employers to take care of us, maybe give us a better salary, we are actually asking them to take care of our financial needs for us. This might, and does, lead to disappointment. But why expect others to take care of you - when you have the power within yourself? All you need to do is Invest.
Ladies and gentlemen, I'm here to tell you about this power, the power of investing, and how you can use investing to take care of all your financial needs, to start minding your own business.
What is investing?
Investing means to put your money in a place where it grows and gives you more money. People usually invest in Stocks i.e., they buy a part of a company which they think will do well. People also invest in precious metals like Gold hoping that the value of gold will go up. And you can also invest in fixed income investments like bonds which give you a fixed return on your investment. These are the main avenues of investment, and you can use these to make your money grow. I find a combination of these investments to suit me personally. I invest a majority of my money in Stocks, and a part in gold and fixed income. Hence I diversify across these investment avenues.
But investing requires time to understand and you need to know what you're doing while investing. So, Why should you invest? Why should you spend the time needed to learn how to invest?
To become rich. And what does “being rich” mean? Does it mean that after retirement you have enough money to lead a comfortable life? Does it mean that you have enough money to send your kids to college? No, anyone can do that. Being rich, for me, means that even after I’ve lived a comfortable life, I leave a substantial amount of money for my future generations, so that they may build upon it even more than I have. That is being rich. And to do this, you need to hold on to the money you have instead of spending it away.
And how does investing help you do hold on to your money?
Let me explain with an example. Two people, Mr. Spender and Mr. Investor, want to buy a new plasma HDTV which costs 3000CHF. Mr. Spender saves up for the television and then buys it by paying the full amount. What will Mr. Spender have in about 3 years? After 3 years, he will have a television which then would be worth half as much as the original value or 1500CHF. So he has spent half of his money away.
What does Mr. Investor do? The investor waits, he waits till his investments generate 3000CHF. Then he buys that television and uses his profits to pay for the television. What will he have at the end of his 3 years? He will have a television worth 1500 CHF, plus he will still have his initial investment. So investing lets you keep the money you have and still lets you buy the things you want. This is the fundamental concept of investing.
Before I conclude, I would like to put in a word of caution. Investing without knowing what you're doing is dangerous. That’s why I would recommend you read a couple of good books on investing. They will help you get started. Investing is pretty easy once your basics are clear. I'm no financial analyst of money manager and if I can do it, anyone can.
And where can investing take you? There is a guy called Warren Buffett. He did not make any software; he did not inherit any money. All he ever did was invest. In his first partnership at the age of 25, he started with investing just a $100. His personal fortune now totals $62 billion. He my friends is the world's richest person and the world's greatest investor.
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P.S. Good books to learn about investing:
3 comments:
"He has a TV worth half as much as the original value, plus he still has his initial investments."
Guess mentioning the returns on his initial investment is also a point?
Mr. S = 1500CHF
Mr. I = 1500CHF + Initial Inv + returns in 5 years.
Or is it assumed that the returns from this initial Corpus are used to buy some other good (recursively) ?
Please correct me if I got it wrong.
-Rishi
Nice speech about the importance of investing. However, I have one comment.
Regarding the example on spender vs investor, if you consider the following line:-
"What does the investor do? The investor waits, he waits till his investments have generated 3000CHF. And then he buys the TV and he uses his investments to pay for the TV."
My question is - Does the investor buy at the same time as the spender? If yes then the argument is justified, but if the investor buys at a later date than the spender, then the excitement of buying that model also has faded with time. The value in buying a new model cannot be compared in terms of money directly.
Good luck with the speech.
- Ameya
@rishi: good point, however I am afraid this will make the speech a bit complicated. I am aiming at making it easily understandable, especially for people who have no clue about investing. If you would like to grow your money, you would reinvest a part of your returns as you correctly mentioned.
@Ameya: You're right. I assume in the example that the investor would be buying the same model, but instead of just saving up for it, you invest your money to buy that one. If later the investor finds that there is a newer model, its his choice. Important thing is to use investing to buy things you wish for (in my case a Porsche 911 Turbo):-).
I would like to thank everyone who gave me their feedback by posting on my blog or sending me an email.
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