I was hesitating whether to share this post as I prepared my blog post. I know alot of people around me aren't aware of the importance of handling money well. Some splurge and some too stingy. We just have to be more open minded when we talk about money, let me share this with you:
There are few ways to earn money:
1. earn money by physical work and time--blue collar
2. earn money by brain and time--white collar
3. earn money by brain, time and capital/money--businessman
4. earn money by money--investor
Where you want to end up in this 4 category? No doubt we all love to be either 3 or 4 but do you have what it takes to be there? I personally want to be ideally at category no.4. You might think its fat hope to be there without capital. Let me tell you this, every cent in your pocket is your capital if you know how to make it work for you. Simple rules from the guru which I adapted.
Two rules in investment:
1. Never Lose Money!
2. Never forget rule No.1!
Easy to say hard to put it to work right? In reality its almost impossible to not lose money right?For example: If you've invested 1000 but lost 500, that means you lost 50%. Now, you've only got the remaining 500. To gain back what you lost, you have to gain 100% from what you have now. You'll notice that, you have to gain 100% to gain back the 50% you had lost, it is double. That is why the rules says no losses allowed.
Practically there is a few ways of investing, investing time is also some sort of invesment but here we are talking about the *ching ching CASH. Slowly take your time to learn, losing is inevitable for amateurs but it can be avoided with careful observation. Its like walking, once step at a time and you'll reach your destination no matter how far it is. (That is provided you walk forward and not backwards making losses).
I myself is a unit trust consultant but trust me I don't mean to earn money doing this because the commision is too little that I won't bother looking at it. Its a way of learning how to invest properly I wouldn't want my clients to lose money as well. Investing is the way not selling unit trust. The money I churn out from investment exceeds sales commision I get by a great leap. Why I suggest people who started working invest every month? Alot of people doesn't know that there is this thing call compound interest.
Compound interest = little capital + time
Which also means that you earn interest from all the interest you get from your investment. The earlier you start the more interest you gain. Eg:
Here, A invests 1000 every year and maintain it 10 years, if the return is 10% every year, he got 17,531 at the end of 10 years, then his total return is 75.31%.B only starts investing in year 6, he invests 2000 every year and maintain it till year 10. If the return of every year is same with A, 10%, he got 13,431 at the end of year 10, his total return is 34.31%.Obviously, their total returns are different although their capital and the return of every year are same. A got 75.31% return while B only got 34.31%
See what I mean now? Savings is also a good habit not only for rainy days but also for you to have an opportunity to strike when the windows are open.
Now since we just passed our Chinese New Year not long ago, let me tell you how great my stupidity went. As you all know gambling is a high risk investment. Emotions contributed alot in gambling. There are 3 major skills in gambling:
1. choose the lowest risk game
2. minimize the risk
3. dont be greedy
Among them item no.3 is plays the most important role. When you don't follow the rules and play for fun, you'll end up like me losing in Texas Hold'em, Mahjong and etc. I'm bad at gambling because to me its a matter of luck but once in awhile having fun with friends exceeds the opportunity cost of losing therefore I'm more than willing to play with friends albeit losing.
That's generally the basics of investing. If you have savings put it to work and don't let it sit there in the bank, the least you could do is put it in FD but unfortunately it lowers the liquidity of your hard earn cash.
I dream of being an investor or venture capitalist. However with lotsa money constraints I can only start small. A lot of retail investors like to trade in stocks. Most of them make loss throughout the years of course there are also brilliant ones who made it. They believe stocks are suitable for trading and not for long-term investment. I've my own investment strategy I don't aim for blue chip but I look at a longer term for company that has future prospects of becoming big. Unfortunately its tough in Malaysia to spot them because you have too many miscellaneous factors involved. To make money in the market is simple provided you make your move a step quicker than the market raiders or sharks. So what is your investment portfolio. Have you even started putting your salary to work? Warren Buffet started investing when he was 16 and he said he started too late. Happy investing!
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