Defining “investment”
For a simple definition, I’ll turn to Wikipedia:
Investment is the choice by the individual to risk his savings with the hope of gain.
What does this include? Most people think about stocks when they hear the word ‘investing’, but it could also mean a variety of things. This might include buying a very cheap second hand car for the purpose of selling it again. It’s also an investment if you buy old houses or apartments so you can fix them up and rent them out. The capital you use for a business can also be considered investments. In high school, my sister used her allowance to buy cheap sign-pen ink by the bulk and sell them at school for a profit – even that is considered an investment.
But there are also broader definitions of the word. Some people might say that buying a good suit to wear for a job interview is an investment.Taking part in a paid workshop or seminar might also qualify. The point is that the word “investment” can mean different things to different people, but for the purpose of this blog post, I’ll use the definition above.
My own investments
To give an example from my own background, let me list some of my major investments:
- Businesses that I understand well. The first major venture I invested in was Web Content Wow, a web content provider. At that time (it was 2003), I spent around $10 for the domain name, $6 for the hosting, and around a total of $150 on other miscellaneous resources. I also hired some writers I knew who could work with me. Considering the low capital, I made a profit within the first month.
- “Virtual” real estate. Domain names, blogs, and websites are the houses and condos of the internet. You can buy and hold, develop them, or sell them to others when they become more valuable. If you want this investment to be more passive, you can hire other people to do the maintenance for you.
- Information products meant for sale. I recently got into selling information products as an investment. This includes e-books that I publish or e-books from affiliate programs. Someday, I hope to include audiobooks into the mix. This is an investment because I pay for some start-up costs, and unless I write the e-book myself, this includes hiring some writers to do the work.
Although some of those investments produce “active” income, such as services I have to provide or projects I have to run, I still prefer “passive” investments that require little or no maintenance. Why? Because if you have to work too much to profit from your capital, then it’s more of a job rather than an investment. Your income still depends on your participation and effort.
What I do is try to make the above investments as passive as possible. I may put in some initial effort, but there should be no or little maintenance involved on my part in the long run. This ensures that I’ll won’t just be trapping myself into new tasks/jobs when I start a new investment.
What should you invest in?
If you haven’t gotten the idea from my own investments, here’s the most important rule I apply:
I invest in ventures that I understand well. If I don’t know anything about a business, an investment vehicle, or an industry, either I don’t invest in it or I try to acquire above average knowledge about it.
This may sound like a limiting rule, but at least it keeps my investments in an area where I have more control. I’m less prone to being scammed and fooled because I always know more than the scammers do. Also, this means I’m not dependent on other people making these investment decisions for me. And what’s the result I got from sticking to this rule? All my investments have profited.
Of course, this rule is a personal choice. Many people I know invest in things they only have a vague understanding of, if they have any understanding of it at all. But my money is such a personal tool for me that I wouldn’t want to invest it in something that I had no above average knowledge of – such as stocks. There might come a time that I’ll be knowledgeable in such things, but until then, I’m sticking to the things I know I excel in.
How about you, what is your investment strategy? How is it working for you?
Image by Fran Priestley
hi,
this made me think my strategy, or lack thereof. truth is, i’ve been wanting to have my own business/investment for quite sometime now, but i cannot proceed according to my plans. i was able to start with the first few milestones, but i got stuck in some of them.
reading the rest of your blog.
i’ll be back here. for sure.
[...] blind financial decisions? We need to do the research. In a previous post, I talked about how I only invest in things I understand well. If I don’t understand something yet I want to invest in it, I do the legwork and conduct [...]
I also only invest to the things that I know. But if I want to learn a new lesson, I try my best to educate myself. Before, I was only investing on a less risky mutual funds and unit investment trust funds, recently, I’ve been on the riskier type of investments which is direct investments in stocks. As Robert Kiyosaki say, a lot of people are afraid of investing because of the fear of losing money. But to be able to lessen the fear of losing money, one must educate himself in such investment.