What is Investing?
Investing can be described as something between an art and a science. Many great minds tried their luck in this arena, including Sir Isaac Newton, and they failed. That’s encouraging if you think about it. No one has found the “secret formula” to be successful in investing and yet many tried to (I am talking about people with ‘beat the market year after year’ ideas). The secret formula is that there is no formula.
You don’t need to be the smartest guy in the room, you don’t need some crazy business insight or insider information. According to Warren Buffet “all you need is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”
Investing is simply putting your money to work for you. How cool is that? People usually work 40 hours week and that’s great. You work hard to earn those dollars. Letting them sit in your savings account will only cause you to lose money through inflation. What you can do is put your money to work for you by investing. For example, this can be through investing in a low cost index fund (passive investing). By following simple principles and doing an extended amount of research you can expect to receive very satisfying returns on your investments (active investing). Active investing requires much more attention than passive. Active investing almost borderlines with portfolio management where you have to watch your investments carefully. Either one can be beneficial, depending on how much time you want to devote to it. Remember, by not investing and by putting all of your money in the savings account, you actually lose money year after year due to the impacts of inflation.
Keep in mind that investing can consist of many different “investing vehicles”. You can invest in the stock market, bonds, cash equities, real estate and many others. What you choose to invest in depends on your personal investing strategy and your current financial situation.