Firstly, I didn't really create the title myself. Robert Kiyosaki did have a quote that "Investments are not risky, it is the Investor that is risky". So that's how I got it. For those who didn't already know, his books kinda kick start the thinking in me and I thank him so much for it. And of course, Warren Buffet's quotes and techniques have also been great guidance to me. I have gained so much confidence because of them. Thank You Gurus!
In this post, I hope to help anyone who reads this to gain confidence in investing. Sorry I might be repeating some things I have written previously, but the truth is things are all inter-connected so its too easy to be talking about the same thing.
Robert made his books exciting by providing some very interesting examples to help people understand a situation and it is a brilliant way to describe some things that are hard to picture. I have an example today on why investing is not risky as people think. Nothing is risk-free in this world. The closest thing to risk free are government bonds, but history has shown even government can default. Here's the example.
Students are the investors and the exam is the stock market.
We have two students, one is the scholar (the smarter one) and the second is the average student . The scholar obviously studies a lot harder and smarter than the average student. Which of them runs the higher risk of failing the exam? Obviously the average student. Lesson of the day, do your homework and your risk is instantly lowered. The exam is the same for both students just like the stock market is the same for you and the entire world, but why are some investors just better than the others?? They do their homework.Another way to say this, if you studied for the exam thoroughly and understood very clearly all the topics, would you feel confident walking into the exam..I am sure you will. It's the same thing, if you did your homework in investing terms, there's where you get your confidence from.You know what is better than the others.
Experience. I hear people say don't go into the market because you lack experience. Very true, a less experienced investor might run a higher risk as they are unfamiliar with certain situations. But once you have done your homework, taking small steps into the market would be the best. You don't need a lot of money to start off so just have a reasonable amount and buy securities you fully understand. I am repeating again, you learn by playing!! The longer you get yourself involved, you will realise some mistakes which you can avoid making again and learn to watch some trends which will give you huge benefits. Later on, you can devise strategies and plans which you can try out and learn. You will be moving up the ladder in no time.
I know it may sound wrong to plan your retirement if you at your 20s. But have a thought, if you have another 30 years before retirement, thats not a lot time to save up. If you have $1 today, putting it in the bank at 3% compounded, you will have $2.43 in 30 years. In the middle of that 30 years comes family and bills to pay. And the true thing is without proper planning, you might be left with very little when you retire. If for 30 years, you return 140%, that is really not sufficient in todays terms. Also we look at the time value of money factor. This rule tells us a dollar today is different than a dollar in a years time because that dollar can be invested to earn interest. It means, YOUR MONEY IS MOST POWERFUL AT THIS PRESENT MOMENT. If you wait another month or year, its power depletes gradually.
An example, if a person challenges you to earn a return of 100%. Would it be easier to make to 100% in 5 years or 10 years? Definitely 10 years. If interest was 10% a year, the challenge would be too simple. The extra 5 years does make it easier ....doesn't it. If your investing lifespan is 30 years, please start now! 30 years becomes 29,28,27.....years very soon so please make use of these precious years. I use precious because time is probably the most important factor when you decide on investments. I hope everyone realises the power of time in investing. Waiting any longer.....now thats risky!!!
Have a good day. Thanks for reading.
~deyao~
