Hello! Seiiti Arata. So you have saved some money and want to know about different ways to invest your money and receive a good financial return. But is the best investment always the one that pays out the most? Or is it one that gives you the greatest security? What kind of investment requires the least amount of time and effort on your part? What is the best investment once all these factors have been taken into account? In order for you to understand what the best investment is, it is very important that you understand your goals, capabilities and what kind of investor profile you have. Let me illustrate this for you with the story of Alexander.
1. High liquidity and low risk.
Alexander has an excellent job that pays him with an above average salary. How did he get here?
Since finishing his studies, he has always strived to be above average in everything he does. In addition to being really technically qualified in his job, he has invested his time into completing additional training and achieving extra certifications. He paid for private foreign language teachers. He volunteered at events in his area, as well as taking part in voluntary associations too. He made a lot of contacts in the industry that he wanted to be in. In other words, Alexander’s first investments weren’t just financial investments – they were investments into his education, investments into himself and into his relationships.
Being financially educated, Alexander also spends less than he earns. If he wanted to, he would be able to rent a much larger apartment and could also spend a lot more money on luxurious products. However, he thinks about the future and wants to have a quiet life without debt. So he currently lives a moderate life and manages to save 40% of what he earns. He plans to buy a home in the future, but there is a lot of uncertainty ahead. Alexander is still single. He likes what he does. He is going places in his career and is constantly receiving interesting job proposals from different companies. He might do a graduate degree abroad, but he’s still undecided. He might even accept a proposal to move to another city.
As Alexander is young and has no fixed roots in the city he’s currently living in, he prefers to keep his savings in government bonds that have good liquidity and low risk. He doesn’t try to pursue the most profitable investments because the main source of prosperity for him is to keep moving forward in his finances.
In his spare time, instead of watching TV or reality shows, he spends his time studying stock behaviour, cryptoassets like bitcoin and he also has a sound knowledge about the real estate market in his area. He’s not yet invested in any of this because he’s not confident enough in his knowledge about how it all works. He makes use of investment simulators to get practice in investing without having to make the compromise of losing his own money. By doing the simulations, he learns that if instead of having bought government bonds, he had chosen some of those stocks, bitcoin, or even land, he might have earned more money in return.
However, the amount of risk in investments in other areas would be higher than the risk he had undertaken when he invested in government bonds. Alexander made the conscious decision to focus on working hard and to keep being the best he could at everything he did. As well as this, he knows that there are other types of investments that can pay out more money. However, there are some problems with them: some require a certain amount of time in order to see results. As in, if Alexander were to want to take his money out of the investment to spend, he couldn’t. There would be various charges associated with withdrawing his money before the investment contract was over, meaning that the investments would be of low liquidity.
Note, therefore, that in this scenario the best investment for Alexander was in government bonds. The lesson we have learned here is that when choosing between different investment possibilities, it is necessary to evaluate how much money you could make, while taking into account the amount of time and effort it would take to do research and follow-up plans.
It is also necessary to understand that some types of investment can fluctuate. This can happen, for example, in the case of bitcoins and cryptocurrency. There are times when the price increases, but also times when the price drops a lot. The problem with this type of investment is that if you need the money when the price is at a low, you can end up losing a lot of money.
2. Liquidity and average risks.
A few years later, Alexander eventually moved to a new city. It was really worth it for him to not tie himself down with investments in his hometown because since then, his plans have changed. He is really pleased that he invested in government bonds, as they allowed him to focus on his career. He chose to spend less time on social media and instead he invested in himself, by reading books, taking courses and representing his company in different associations and conventions. All of these factors have led to numerous job offers.
A lot has happened in his personal life too. He recently got married, and him and his wife are renting an apartment. They have the money to buy the apartment if they wanted to, but they feel it’s a bit early for that. They chose to live in a practical and small apartment. Both him and his wife work hard and are very enthusiastic about the professional challenges each of them takes on, as well as the recognition that they gain for their honest and hard work. They don’t spend much time at home. In the evenings, they like to go out for dinner with their friends and on weekends and bank holidays they tend to travel or have days out. Because of this, they realised that it didn’t make sense to buy an expensive, lavish apartment. If they’re paying low rent, it gives them a good opportunity to save and invest their money.
As he has already invested a large amount of money in government bonds, Alexander has decided that he wants to expand his horizons. Using the information that he learnt when he did some research about different types of investments, he’s now confident in buying stocks, gold and cryptocurrency. He is aware that these are riskier investments and that there will be times that the money he has invested will decrease when the price drops; but he knows that he won’t need the money any time soon. In fact, at the times that the prices decrease, he doesn’t worry because he knows that once he gets paid he can invest even more money. When other investors panic and sell their stocks for a cheap price, he buys them at a discounted price.
Knowing that Alexander has quite a bit of money behind him, different friends have invited him to be a partner in different businesses. He was also contacted by potential business partners that have proposed to buy a large plot of land and turn it into a shopping centre, and rent spaces for shops. When he looked into it, he saw that there was quite a good possibility of making a good profit, with his potential income looking like much higher than his current array of government bonds, stocks, investments in gold and bitcoin. However, Alexander understood that if he were to go into business with these people, he would have less time to devote to work and, more importantly, he would have less time to enjoy life with his wife. Because of this, despite the possibility of making a lot of money, he refused the offers. Again, the best investment for him was not necessarily what paid the most. The best investment is the one aligned with what he wanted from life and the context of the situation.
Over the next few years, Alexander continued to be a passive investor. He only spent a small amount of time monitoring what happened to his different investments. He had no interest in being an active investor because his head was still focused on two areas: his career and his family. He was invited to be a manager in the company he worked for. His wife got pregnant. Now, another stage of his life was beginning.
3. Home owning and emergency funds
The couple started spending their weekends looking for different apartments that they could buy. With the baby on the way, the couples’ needs have changed.
After having found the apartment they like, negotiated the price, they managed to pay 60% of the total price of the property. They got fantastic mortgage rates for the other 40% of the price of the property: low interest rates and with small installments that had a small impact on their monthly budget.
For the next few months, Alexander always looked at the price of his variable assets like stocks and crypto currency (the assets that can fluctuate in worth depending on the market). When the market was high, he sold his stocks at a profit, and used the extra money to pay off his mortgage faster.
His main priority at this point was to make sure he has a fairly large emergency fund. It would have been possible to actually pay 80% of the price of the property, but the couple thought that this could be a little risky since it would involve using all of their savings. Spending all their savings could have left the couple in a vulnerable position if they had come into any sort of emergency in the future. Having the emergency fund there gave them a lot of peace of mind through the pregnancy and in their relationship.
During the time it took for them to pay off the mortgage, different investment opportunities came up. Many of them seemed to be very low risk and had the potential to make a good profit, however Alexander refused them all as his main priority was to pay off the mortgage on the property.
4. What will your story be?
We could present other versions of this story. Maybe one where Alexander is more aggressive and confident in the ventures themselves. Or maybe one about a trader that’s interested in having above-market returns. We could see what he would do in the future, after his children had graduated and left home. The story we tell is just a possibility. And it was a very simple story. Simplicity is a intellectual way of explaining an idea, a principle.
What we want to learn is that when we are looking for the best investment, we have to understand what stage of our lives we are in. What our expectations are. What we need to learn before we take a risk. There is absolutely no better investment than one that is made when the context of your life is taken into consideration. If an amazing investment existed, regardless of your current position in life, everyone would be investing in it. The process of financial education involves knowing yourself, and this is what we help you to do at https://arata.se/moneytaboo.
When we speak about knowing yourself, it is important to know what we know and what we don’t know, and to question what we think we know, always bearing in mind that this could be wrong. This is the basis of critical, rational thinking, as skepticism is very useful in helping us achieve our desired results.
Do you know how to invest in government bonds? Do you know how to invest in stocks? Do you know how to invest in crypto currency? Can you identify when is the best time to invest in each of these opportunities? Can you properly distribute each of these investments in your financial profile? Can you deal with the risk of devaluation of your currency, using foreign currencies as protection?
To have the knowledge is one thing, but to carry out the actions is another.
Examine how much money you have in savings investments today. Look at how much money you’re actually investing (and not just having an idea about it). Have you considered investing in real estate, training and education, or business? Do you realise that these are also different types of investments that have potential to give you a nice tidy return? All of these options must be weighed up together, and intelligently evaluated so that you can make conscious choices. This is exactly what we will do in this course. Visit the following link to continue: https://arata.se/moneytaboo