Jun 292014

“You make your profit when you buy.”

Those are words of advice I’ve heard for a long time and from many sources. They mainly emphasize that you should always purchase an investment for as low a price as possible. Makes sense. I’m talking about it today because it also hints at something that most people don’t realize:

Investing is about spending money, not saving it.

People think about investing all wrong. It’s not about saving money. It’s about buying things that bring in more money. When you think about investing that way, you suddenly become much more conscious of what you’re putting in your portfolio.

People buy things because they get something back in return. It’s the simple idea of trade that humans discovered many eons ago – you give something you have in order to get something you want. These days, that involves giving money in return for a product from somebody else. Spend money to buy food because it helps us live. Spend money to buy a car so we can go places. Spend money to buy a suite because it looks dashing. Spend money to get that suite tailored so it fits better, which makes us look great.

Just like when you buy anything else, you spend money to buy an investment because you see it bringing some value in the future. In this case, the value is money itself – either through cash flows (dividends, interest, selling product) or reselling the item in the future for more money than you had bought it (price appreciation).

You know how when you want to buy a car, you go to the car dealership, give the salesperson your money, and let that salesperson buy whatever they think suites you at whatever price they think is good? No? You don’t do that? In the investment world, it is pretty common for people to just hire a financial adviser, transfer the money over to them, and then give them free reign to do whatever they think is best. That doesn’t sound like the best idea either, does it?

Think about what you’re getting when you purchase an investment. Do some research on your own or at least get a second and third opinion from knowledgeable people. These are things you would when making any other major buying decision. Give buying investments at least the same weight.

 Posted by at 3:20 AM

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