| Eve & Elle Admin
The most important thing about investing, before you start
Yes, investing has to do with money, but it has more to do with value. You need to understand the meaning behind money to understand investing.
Money is a subjective store of value. It is not value itself. Time is also a form of value. Knowledge is too. Happiness and positive experiences are forms of value. Money is often just a way of interchanging these forms of value with one another.
So basically, you don’t want more money. You want more of the things you value in life and wealth can help you achieve those.
What if your money could do more for you? Have you ever heard the expression “money never sleeps”? It refers to the concept of using money as a tool to create wealth for you.
Saving up money is one way to gather wealth. Depending on the economic setting, and things like the interest rates at the time, there are also more efficient ways of creating wealth.
One way is to invest your money in securities (basically just another word for products) on the stock market.
1. Understand Value or “Perceived” Value
Value, oddly enough, is not something fixed or exact. This is why there are standardized, formulas, scales and ways determine or estimate what the value is of something. Especially on the exchanges / stock markets. Essentially, value is a perception.
In the buying and selling of securities, the value of the security is what someone is prepared to pay for it.
2. “Stocks are up”
You might find yourself asking the important question; “Why is it good if the value of the securities that I own (i.e. stocks, shares or bonds) go up?
When the perceived value of the company / companies, of stocks / shares that you own, go up, it means that the whole company is worth more, so the portion of the value that you own, is also worth more.
Note that you will only benefit from this or not, when you sell your stocks / shares and compare the amount and value of the money you got out of the trade now, compared to the value of the money when you invested it.
Also, when to buy and sell your shares / stocks, is both a science and an art. Ideally, you want to sell your stocks / shares or “cash in” when the value of your securities is higher than when you bought them initially.
3. Risk Appetite
Risk appetite is how “hungry” you are to take risks and how much you want to risk. How much risk you will take, on the way to achieving your goals. Defining your risk appetite will be a balance between the possible benefits of your investments and the threat that they might not happen - at all or as quickly as you want them to.
The right level of risk depends on your objectives, time frame and what interests you because some products are inherently risky.
Here are some of the types:
- Averse: Avoid risk and uncertainty. Make choices that incur (next to) no risk
- Minimal / Cautious: Choose safe options that are low risk, but may have a potential for only a limited reward or slower reward
- Open: Willing to consider potential ways to achieve goals, weigh them against each other and choose the one most likely to result in success, but within an acceptable level of risk that could be mitigated, if things didn’t end up going well or according to plan.
- Hungry: Eager to try more risky things that might potentially have higher rewards, or offer faster rewards, but may also result in losses. If you are hungry for risk, it helps to have an
I love to equate things to clothes. A low risk appetite, could be like choosing to wear a classic Burberry trench coat. You can’t really go wrong there though it is plain vanilla. If compliments are what you’re going for, it’s return might not be very high. No one will really notice it. A red dress is more “risqué” or risky in this analogy. It might be more ‘interesting’, but it might not necessarily get you more compliments. It might even turn out to give you trouble, if you end up getting cat-calls, instead of compliments. Though maybe red is the favourite colour of the cute guy that you’re crushing, and it catches his attention, and he asks you out! That red dress just paved your way to success! Exciting things can happen when you take risks, but exciting isn’t always a good thing and can get you into trouble.
Good risk management doesn’t mean avoiding all risks at all cost. It really means making informed choices regarding the risks that you want to take in pursuit of your goals and taking precautions to mitigate those risks.
| Also read: Achieve your goals. 4 ways to manage your time, 4 Great books to help you reach your goals and Unburden yourself from the expectations of others. |
4. Returns
Returns are how much an investment yields, or how much profit and gain you make on it. High risk does NOT always mean high returns. You can also make low risk choices and have high returns.
So the goal is...
The bottom line is that no matter how much risk you take or don’t take, performance is key and your investments need to pay off in the end and have good returns, otherwise they are not worth your time, energy or worry.
What are your goals? Please share your thoughts in the comments section below as we are just as much inspired by you as you are by Eve & Elle.
