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
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
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
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.