Sad stories about how people lost their hard earned money will continue to make head line for as long as people make investment. The reason for this is that many people throw their money away all in the name of investing.
I was having a chat with a friend in a Christmas party last week when he told me how he managed to recover just under half of his investment in bitcoin. Bitcoin is a virtual currency that enables people to exchange mostly digital goods and services.
Many financial institutions and top notch investment bankers have always been and are still sceptical about the sustainability of the bitcoin. Government of some Asian countries like China also are frowning on the use of bitcoin as a digital legal tender.
My friend failed to adhere to the caveats of investment. The number one rule of thumb of investment is to ensure the safety of your capital. This is where money management skill becomes so important. What is the point of investing when you cannot even guarantee the safety of your capital?
The woe stories of people losing their money still continue to make head line because people simply don’t understand what really constitute an investment. The mere act of putting your money in a course of action does not make that venture an investment.
At best, most of what people call investment are nothing but R&D expenditure. In accounting, you generally do not capitalise the research aspect of R&D. this is because the outflow of these cash does not meet the criteria as specified by Accounting Standards.
You simply cannot expect to benefit from uncertain events. Yes, there is an economic outflow but how can you guarantee that economic inflow will occur as a result of you putting money in what is at best a gamble?
2014 investment advice based on 2013 investment lessons
Get advice from experts: you wouldn’t consult a mechanic for your health issue, will you? My guess is that you probably won’t, so why take cheap investment tips from people that you are more knowledgeable in investing? My friend that I talked of previously invested some money into Bitcoin based on the tip that he got from an online forum. I trust you will make such a mistake, contact your financial planner for professional guidance.
If it too good to be true, it probably is not worth the risk: I still cannot understand what people see in making what I call ‘clear greed gamble’. One of the main reasons why people lost money in 2013 is because they dabbled into all sorts of investment scheme knowing fully well that the numbers don’t add up. How else do you explain the rush for the share of a business that has nothing but vague promises of making super profit from an uncertain future event?
Do not put all your eggs in one basket: I have never seem a single person that solely depend on one type of food from the day he or she was born yet, people still think that it is possible to be a successful investor simply by putting all their money into one investment vehicle. In as much as focus is encouraged as far as achieving set objectives is concerned, investing is one place where it has failed a lot of people. Strategy of focusing is extremely effective in managing businesses but not for managing your investment. This is why investment bankers and other investment professionals encourage their clients to have a diversified portfolio.
Have a contingent exit strategy: the golden rule of investing still remains having a clearly marked exit route. There is little in putting your money where you cannot easily retrieve it if things go sour. Always ask for an exit strategy before you make that investment commitment.
While many people smiled to the bank in 2013, a lot more people still tell same old story of losing it all to a glorified gambling all in the name of investing. The time that you invest in planning your investment path and taking expert advice is well worth all the effort. Follow the simple rule of thumb and you will hardly go wrong.
Welcome to 2014, hope your money works even harder for you this year and beyond!!