- Introduction to real estate
- How to directly invest in real estate
- Indirect ways to invest
- How I have averaged 25% return per year on my real estate investments so far
- Related articles…
- Introduction to the stock market
- How to invest in stocks
- How I make 3% to 4% return on my stock portfolio every year
- Related articles…
- Introduction to the farming industry
- How to invest in farmland directly
- Indirect ways to invest
- How I’ve made a 10% return on my farmland investment so far
- Related articles…
What is Investing
Short Answer: In the simplest terms investing means to put money into something with the expectation of achieving a profit or material gain in the future.
Better Answer 😉 : The text-book definition above is just what they teach you in school. But in reality investing is much more than that. Investing is an art form. It’s a way to see the world. It’s a path of never-ending learning and enlightenment. Investing is an entire way of life! Once we realize its significance in this world and how it can shape lives we can use that influence to empower us to transform our lives and of those around us. It can turn hard earned savings, which doesn’t do much by itself, into a lean, mean, income generating machine 😀 Or it can turn a small business into a multinational conglomerate. It can even give anyone the ability to retire early like I’m planning to do. Investing is an omnipotent tool that can grant whoever wields it the power to literally turn dreams into realities!
Investing teach us important lessons about everything in society from politics and entertainment to consumerism and home economics. Investing is the catalyst for innovation and progress. Pretty much everything in our homes today from toiletries to clothes to computers to wall paint, are all products of some previous investment at some point in time. The fridge in your kitchen today once only existed in somebody’s imagination. But then they invested their time, effort, and put their own money at risk because they believed in their product. They believed in their dream. And that investment has turned out to benefit all of society. Everyone from individuals of all backgrounds, to governments of all levels, to companies of all sizes are constantly investing and all their investment decisions are interconnected like a giant web of financial activities. Investors will only put money in harms way if they think the reward is worth the risk. City council will only invest in new parks and public amenities if they believe the increased desirability will help improve the city’s future. Businesses invest in new equipment and new hires depending on the economic outlook and public policies. By understanding how investing works we can understand how the world works!
“An investment in knowledge pays the best interest.” – Benjamin Franklin
Depending on the decisions we make in life we all end up in different careers and financial situations. This makes sense because if we all had the same jobs the world would be a pretty boring place. However this gives high income earners a better quality of life than the average Joe who only brings home let’s say $40,000 a year. I’m sure many people who make six figures or higher work long hours, carry big responsibilities, and deserve what they’re paid. But what about the rest of us? Is it possible for just about anyone to enjoy an upper middle class lifestyle no matter what career one is in? Absolutely (^_-) The answer is through investing. I like to think of investing as the great equalizer of wealth and power. It doesn’t matter where you live, what school you went to, whether you’re making $15 an hour, or $50 an hour, because anybody can invest for a brighter future.
I’ve been working and investing since 2008 and today I’m generating about $10,000 a year of investment income, not to mention the tens of thousands in capital appreciation I haven’t realized yet on my assets. Investing works well for lazy people like myself. As a simple example, earlier this year I spent about $2,000 of my savings to purchase some shares in coffee companies, and now these companies pay me $40 annually in dividends. I can literally go on vacation for a whole year, come back, and there will be $40 deposited in my investment account. Making $40 doesn’t get any easier than that 😀 It certainly takes money to make money, but it’s not like I spent $2,000 and it’s gone. Instead I now have $2,000 worth of coffee businesses which is a pretty cool asset to own if you consider how many people around the world are my potential customers :0) I usually post about new investments I make so I have tons of other examples like this one where I’m building up passive income 😀
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen
How to Invest
First step to becoming a successful investor is to have the right mindset 😀 We must respect and admire rich and successful people instead of being jealous of them. Don’t be upset that CEOs like Warren Buffett pay a lower income tax rate than their secretaries do. We should instead learn the ways of the rich so that we can one day also enjoy the same low tax rates as other wealthy investors do. We must be proactive and take action with purpose to improve our own finances instead of waiting for someone else to give us a free handout. The only behavior we can control is our own, and to be successful in investing we have to realize that it’s up to us to change our financial future. We must thrive for greatness ourselves instead of blaming how unfair the system is. The investment world isn’t fair by design. Otherwise why would anyone want to put their own money in harm’s way for long periods of time if it didn’t pay off? It’s meant to benefit the haves more than the have nots, hence the saying “the rich gets richer.” But we have to embrace this system because one of the fundamental principles of what makes investing so powerful is compounding. The more investments we have the easier it is to grow our portfolio. Investment returns like dividends or capital gains are taxed less than personal income. So by earning more money through investing and less through a T4 or W-2, we can lower our average income tax rate. Once we accept how the system works we can then begin to brainstorm ways we can invest and become one of the haves too 🙂 We must be realistic in our approach and realize that investing will require patience, and risk taking. It’s okay to be risk adverse and critical, but being critical of an investment idea when we don’t yet understand the nature behind the investment can hinder our progress. The final pre-requisite we need before getting into any investment is of course money, which can come from income, past savings, an inheritance, etc.
There are many different ways to invest and no two investors are the same. The most important thing is to understand ourselves. For example if we don’t think we can stomach a 30% drop in the stock market then we shouldn’t invest in stocks no matter how great others say it is. Once we figure out what kind of investors we are we can look for investment opportunities that fit within our risk tolerance. The basic idea is to own some kind of financial asset which will either produce income (like bonds,) or has historically grown in value (like precious metals.) But these two ways to profit are not mutually exclusive which means the best investments are generally income generating assets that also tend to appreciate in value over time (like dividend paying stocks.) Each asset class requires a different mental approach but they all have two things in common. First is that investing is a long term commitment. No matter what we choose to invest in we must first come up with a long term plan and an exit strategy if applicable. Second is understanding the value of the asset so we don’t overpay for what we’re investing in. On the other hand don’t be a bear just because everyone else is and it’s the hip thing to believe because we might miss out on a great opportunity. We must do our own research.
“The individual investor should act consistently as an investor and not as a speculator.” – Ben Graham
What I Invest In
In this current low interest rate environment I’m a big fan of hard assets and stocks. My first large investment was in 2009 when I bought a condo for $230,000. Immediately afterwards I began to invest in the stock market. In 2010 my total assets have grown to $280,000. In 2011 my assets reached $320,000. In 2012 it was $350,000. Last year ot reached over $500,000. And today in 2014 I have over $800,000 of financial assets that not only has a history of appreciating in value over the long term, but also has the power to generate income in the mean time :0) I had to borrow more than $500,000 from various bank loans to purchase all my investments but I believe it’s all worth it. Last year my salary was mid 5 figures as usual, and I have shared some of my previous income tax statements with readers to prove that you don’t need a big salary to build over half a million dollars worth of assets within a decade. All it takes is leverage and some wise financial decisions. It will only be a matter of time before I reach a million dollars in assets and make enough investment income to leave the rat race forever :0) Some of my methods are quite unorthodox, like using leverage (borrowing to invest.) But the truth is, if I hadn’t borrowed money and took on some extra risk, I wouldn’t be where I am today.
“Know what you own, and know why you own it.” – Peter Lynch
I’ve made some poor choices here and there, but overall my strategy has been doing okay for me. Below are links to investing sub-categories I like. The best thing about these investment options is that none of them require more than a couple thousand dollars to get started.