With the current crypto craze going around making everyone “professional traders/investors”. I thought I might start sharing my knowledge of investing through this website. I have been investing for a few years now through multiple vehicles including; Shares, FX, Businesses and now Cryptos. This first article will be about the difference between saving and investing and how they work together to form- essentially a pyramid of wealth.
If you happen to have a bit of spare cash around and would like to make it work for you (make more money), you should consider investing. It is a lot more efficient than savings accounts, especially in today’s economic climate, where it may not keep up with inflation and you could be losing money! (If you are just depositing it into the account as a safe investment)
Investing money is the process of using your capital (spare cash), to buy an asset that you speculate has a good probability of generating a safe and reasonable rate of return over time, making you wealthier; even if it means suffering volatility, perhaps even for years. True investments are backed by some sort of margin of safety, often in the form of assets or owner earnings.
They key element to investing is RISK MANAGEMENT. If you want higher returns you must be willing to stake higher risks. You should only invest what you are willing to lose. I am not saying that you will lose it all, but there is always that 0.00000001% chance that something bad can go wrong because shit happens. You will most likely make money and it will continue to increase over time, depending on your portfolio.
You have to think about the long-term goal of your investments. You cannot expect a 100% ROI (Return on Investment) straight away. Remember the Hare and Tortoise story? The Tortoise generates the controlled, long term, higher return portfolio which can survive any financial crises. Whereas the hare chases the quick dollars and loses it all within a few months.
This is where the pyramid image comes in. Saving money should almost always come before investing money. Think of it as the foundation upon which your financial house is built.
Savings accounts are excellent to keep your money easily assessable, so it is recommended that you have a solid base of savings that you can continually deposit into, with returns from your investments. This will ensure that you have a base to fall back to and have additional capital to invest when good opportunities do come along.
The end goal of the two processes are to work together to simply grow your wealth and achieve your financial goals. Whether they be to improve your lifestyle, have an unburdened retirement or to pay for your children’s education. As long as you control your risk and think of the long term, you will have a prosperous investment journey.
There will be more articles to follow in the future on various investing topics such as: Compound Investing, Dollar Cost Averaging, Types of investment vehicles and everything else important in the investing world.
Thank you for your time!