When you buy or spend money on something, and call it an investment, are you sure it is an actual investment? How can you be really sure it is an investment. An investment is something that is purchased with money with the intention that it will make you a profit. Not everything you spend money on can be considered an investment and many of the things we spend money on are lost in the understanding of what an actual investment is supposed to do.
Take the example of paying for your higher education. If you pay for your own education, even though technically it does help you increase your net worth and earn a higher income; in reality that is not always the case for everyone. Not everyone who goes for an extra bachelors, masters or doctorate degree is able to earn a higher income.
So, if we classify intangible items like education then the ambiguity of the word investment comes into play. This is because we shall now be able to classify everything that makes us more productive an investment, like a great cup of coffee!
However, a case can be made for one using their education to learn the skills necessary to run and operate a business venture. The education gained can in turn be sold as a service in return for some money in an ownership investment. So, education is close, but in the strict sense it is not really an investment.
Another example of things that are not investment falls into the category of consumer purchases such as TVs, beds, cars, and anything that naturally depreciates after use over time. These are assets and it is important to note that not all assets are investments. This is the re-sale value due to depreciation will be much less and thus not give you the profit margins that any investment is naturally supposed to do.
When it comes to actually investing, people have many ideas about what it actually is. Some other misconceptions about investing are:
- That an investment takes a lot of money: This is a common misconception because you can start with small amounts every month and invest in something that is low risk like short-term investments.
- That investing takes years of experience: This is actually not true, there is a wealth of knowledge that is actually available on financial investments, with successful strategies, tips and guidelines.
- That a good investment is one that involves a higher risk margin: In reality, this is not true, because not all investments to be considered “good” have to have high risks, there are low risk investments that have promising returns. This is all about your perspective and your attitude towards investing.
- That investing is not for the young: It actually is! It has been proven that when you start investing when you are young you will have higher profit margins and the biggest benefit of compounding interest.
- That everyone who invests must diversify: As a first time investor, you need to grow your wealth on a steady pace, and the key to doing this is to sticking to specific investments that are able to earn you your desired profit margins.
- That professional investment advisers are necessary for your success: If you are starting out, this may not be a good idea, this is because professional investment advisers cost money that can eat into your own profit margins. However, you can have low cost managers who can advise you and as you keep building up your portfolio of assets then you can have the service.
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