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Investing – 3 Tips That Optimize Your Returns

Why do people invest money? The general answer is to generate wealth. If that is the case, why do so many people end up losing the money they invest? To answer to this question, you need to know one very well guarded secret that is the guiding principle for any type of investing. The secret is - goal setting. You need to have a rock solid goal in place BEFORE you start
investing.

The Importance of an Investing Goal

Most people ask, “How is a goal important here? You invest wherever it
seems profitable and rake in the profits.” It is not that simple. Unless you
have a concrete goal in front of you, it will not be possible to choose the
right investment plan. Therefore, you may not be able to seek the proper
advice or concentrate on the best performing investment plan.

When your goal is to enhance your retirement savings, you should seek
advice on long-term investment plans that might seem riskier in the short
terms and bring in assured larger gains in the long term. Say, your goal is to save for a Childs’ college education. It is important to seek out plans that will give returns in 5-10 years (depending on the age of the child when investing begins). Perhaps the goal is to take a family vacation next year; this would require a separate type of investment.

The investment would need to give high enough returns to sponsor your vacation within one year. Each goal comes with its own parameters, which determine the type of investment you need to seek. Unless this goal is defined, your investment plan are chosen blindly therefore, may not result in optimal returns. It is essentially cheating yourself out of the best deal.

When Not Investing Is The Better Option?
There are two specific scenarios when not investing is actually profitable for
you:

1. When you have an outstanding loan - Suppose you get $5,000 by
way of bonus and want to invest it so it will generate wealth for you;
however you are repaying an outstanding loan of $7,000 at a 10%
interest rate. Should you invest the money or repay the loan? Experts
advise to repay the loan. Why? Realistically wherever the money is
invested, in order to really profit from it, it would need to earn more
than 10% interest, which is rather unlikely. Hence, paying back the
debt is the best way to “invest” the money, as it gives you the highest
returns.

2. When you have little knowledge about investing – do not for one
moment think that investing by default is a great way to multiply your
money. Very often little knowledge or misconceptions about investing
will actually cheat you out of your money instead of multiplying it.
Unless you really know what you are doing, before you invest consult a
professional. It simply makes sense to know all the options in order to
rake in the highest returns before you invest your money.

Trading – Are You Gambling Away Your Money?

Investing as defined by InvestorWords.com is “In general terms, use of money in the hope of making more money.” Gambling, on the other hand is associated with “taking a chance” rather than “taking calculated risks” or strategizing on how to generate an income. There is a very thin line dividing these two actions from one another. Ask yourself- are you investing or are you gambling? How can you tell?
Fortunately, there are ways to tell whether what you are doing with your money is investing or pure and simple gambling. Here are a few points that could spell it out for you.

Peer Pressure Trading
Sometimes, people find themselves in the midst of a social circle who speak of nothing else but trading to generate handsome incomes. So what happens? You too, would like to be part of that inner circle; you want to belong. So what do you do? You plunge into trading without actually understanding what it is, its principles or its risks. This is essentially
gambling.

Excitement Trading
Have you noticed the feeling before the end of a big game? There is a
gripping tight feeling of excitement that escalates into euphoria, if your team wins, or plunges you into despair, if your team loses. Some people are drawn into trading specifically for the rollercoaster ride of excitement that this method offers. They are not driven by the need to generate wealth from the money invested into this technique. What they want is the feeling of excitement that builds from within when they anticipate a win or loss. If this is what motivates your trading occupation, be aware that you are actually
gambling.

‘I Have To Win’ Trading
There are people who simply have to win all the time. They do not find it easy to cut their losses when the stock market is on the decline. They rather risk it all in the hope that the market rights itself and the money put in – which is about to be lost – would be recovered. The “I have to win” attitude is one of the most common traits of a gambler. An investor pays close attention to the market trends and strategically backs out cutting his/her losses to a minimum. If you feel that you cannot back out anytime during trading because you have to win it all, you are gambling.

What Investment means?
As you can see, it is easy to think you are investing when you are actually gambling, as the distinction is very close between the two. The major trait of investing when compared to gambling, are:
- Risks are carefully calculated; no investment is ever made randomly or without careful checking of the market
- Trading is a serious job and not an adventure; anything else, is
gambling.
- There is no compulsion to win. Trading is a means of careful
investment, which generates wealth, but could occasionally result in
losses. Now ask yourself again… Are you investing or gambling?

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