Investing is a quite an endearing term when used under most circumstances. Education, knowledge, personal connections, fun experiences, they’re all great assets to have as a part of your life. It’s important for us to remember that there’s only one life we have been gifted to live (to our knowledge), so it’s best to spend our time on this Earth how we want to spend it. Unfortunately, having freedom in spending your time will require your financials to be in tip-top shape to a point where you are financially independent. Investing is a great way, and one of the only ways I know of, to achieve financial independence. The most important part of investing is to get started as soon as possible once you’re prepared and knowledgeable enough to do so. In other words, just like anything else you should know what you’re getting yourself into otherwise you could be in for a world of hurt (no kidding). Luckily, FFC is here for our members for that exact purpose!
So today, I’m going to talk about the basics of investing in the stock market. This looks to be a great moment to explain the definition of what investing really is. Clearly, I’m not one of the writers of the Oxford dictionary, but I’ll try to state the definition briefly, and in plain English.
Investing: Using current resources to purchase potential yielding assets. When combined with the all-powerful asset known as time, those holdings generate future value greater than the cost of the initial resources used.
So.. What did you think of that? I won’t hold my breath waiting for the applause.
The idea of the stock market is to buy securities (companies) at a low price, and sell your holdings in the future at a higher price.That’s the “buy low, sell high” concept. There are many ways to evaluate what’s a fair price to pay for a company (or a stock index – which contains numerous companies), but I’ll have to describe that in a future session. The “buy low, sell high” concept also goes for real estate, selling products, providing a service, and the list goes on. You are seeking to sell your asset for profit at a higher price than what the asset cost you.
Whether you are investing in the stock market, bond market, your eBay or Kijiji side hustle, real estate, bitcoin or anything else presents an opportunity for growth in monetary terms, you will need an initial investment. AND.. anything you invest should be considered to be “dead money” as there is NO GUARANTEE that your investment will grow in value. Too long; didn’t read? It’s important to protect your investment.
At the risk of this post becoming too long, I am going to leave you with a checklist for what I suggest all members consider before investing your hard-earned capital. I’m not getting this from any other blog, once again I’m basing this from my own experience and advice from Warren Buffett.
I’ll call these the “Three Required Questions for a Profitable investment”.
#1) Will I require the money I’m going to invest FOR ANY PURPOSE in the immediate future (next 6 months to a year)?
#2) Do I understand the company or index I’m investing in?
#3) Would I be comfortable if I lost all the money I put towards this investment?
I intend to explain these in a future post, so stay tuned! I call these required questions because I believe everybody should be very, very confident in their answers to these questions before considering to invest one dollar in the stock market.
Until next time, see ya!