Goal for It: Make your First Investment

Goal # 2: Make your first investment

To invest is to commit money or other forms of assets with the goal of generating income or increasing personal wealth. Simple as it sounds, it must be clearly understood at the onset, as this definition captures the spirit of what is required to become an investor.

Committing money for investment implies that you set aside money clearly intended for profit to be generated in the future. Your investible fund, therefore, is something you will not need for your daily consumption or other lifestyle expenses - areas which are assumed to be supported now and in the near future by the household budget.  

In addition, since the goal is to add to your personal income or wealth, investing requires planning and understanding its fundamentals: It is not gambling, where at best we keep our fingers crossed and pray that Lady Luck is on our side. Investing is really about reducing your risks to the level where your capital is preserved long enough to have the power of compounding work for you. By being able to continuously pile up income over your growing capital, you improve your overall wealth overtime.

To start you out in investing:

January: Know yourself.
Although we would love to have a one-size-fits-all silver bullet that would guide us to sure riches, there is no such thing. Investments are of different types and consequently, each has its own nature and flavor. This means there are only certain investments that suit certain investors. Becoming aware of your appetite for risk, your age and stage in life, and your goals will give you a feel of what type of investments suit you. Skipping these considerations increases the risk of making a bad investment.

March: Know the tradeoffs.
When considering an investment, you should primarily look at the risks involved, its yield, and the ease of liquidating. When you choose one as a priority, the other two factors have to adjust.

If you’re averse to risk and wish to preserve your capital as much as possible, you will have to accept a lower return. In addition, if you want immediate access and convertibility to cash, you may opt for a short-term retail bond, which can be immediately sourced and traded through your bank. But if you want capital preservation but with a relatively good return over time, you might choose rental property, which is pretty safe. This time, however, your capital will remain illiquid until you sell the property. The point is to accept that there are tradeoffs and to be at peace with your choice.