Many people invest in mutual funds. When I ask someone, who is investing in mutual funds, he answers: “But I am also investing. I have a portfolio of mutual funds. I also have bonds and stocks. Isn’t this all investment?”.
Yes, saving is also an investment. Buying mutual funds, stocks or bonds is also an investment. But it is the kind of investment a saver would make, not an investor.
Let’s take a look at the passive investor philosophy. Most investment advisors provide a recommendation like that:
• Work hard
• Save money
• Get rid of your debt
• Make long-term investments
• Diversify your investments
This is good advice for a certain group of people – suitable for people with a savings philosophy or passive investors. In today’s circumstances, I believe this advice is riskier than any financial advice. It may seem as a reliable and wise advice to those who are financially inexperienced.
There is only one word to distinguish between a saver and an investor. That word is leverage. Thanks to leverage, you have the ability to do more with less.
Many savers do not use financial leverage. And if you don’t have enough financial knowledge or experience to apply leverage, it would be better for you not to use it. I will explain this to you later. Let’s take a look at these standard recommendations from the perspective of the saver and then the investor.
When many people think of “work hard” advice, they only think about their own hard work. The leverage effect on one’s own hard work is very small. Imagine if others will help you to get rich with their hard work. This is the power of leverage. States do not ask us to seek jobs, but to create jobs. If everybody starts looking for work, economies will collapse. For economies to grow, we need people who can create jobs.
The problem with saving money is that the current economic system needs borrowers, not savers, to grow. In order for our economic system to continue to grow, it needs smart borrowers. The system does not need people who get poor by borrowing, but people who can borrow money and get rich. While 10 percent of the people who borrow money in the world benefit from their debts to be rich, 90 percent of them become poor with their debts. And this ratio is getting worse every day.
Get Rid of Your Debt
Many savers think that debt is bad and it’s smart to pay off mortgage loans quickly. And for many people, borrowing is bad and getting rid of debt is wise. However, if you are willing to devote some time to your financial education, you can use your debt to move forward. But if you are considering investing with debt, I would like to warn you once again that you should invest in your financial education first.
There is good debt and bad debt. Being financially smart is knowing when to borrow and when to avoid it.
In these economic conditions, savers are losers and borrowers are winners. For whatever reason, you should always be careful when using borrowed money.
Make Long-Term Investments
Look at this advice in terms of sellers: “Give me your money to keep me for years, and I’ll get certain payments from you over the long term.” The phrase “make long-term investments” is like the advantages that allow you to earn points. You become a loyal customer.
Depending on the payments you make to manage the fund, mutual funds may not earn you as much money as other investments.
Diversify Diversify Diversify
Warren Buffet, considered the richest investor in the world, says this about diversification: “Diversification is a safeguard against ignorance. It won’t make much sense if you know what you’re doing. “
Then the question arises: Whose ignorance do you protect yourself from? Is it your own ignorance or the ignorance of your financial advisor?
Diversification generally means that you should not put all the eggs in the same basket. Warren Buffet puts them all in the same basket. He once said: “Put all your eggs in one basket, but watch your basket carefully.”
Personally, I prefer to focus rather than diversify, and actually the reason I was able to move forward was focus, not diversification.
I saw an acrostic on focus in a book I read.
For many, diversification is a good strategy. This is only because it protects investors from themselves and inadequate advisors.
The traditional financial planning advice “work hard, save money, get rid of your debts, make long-term investments and diversify” is good for the average. This advice is also good for those who are rich but are not interested in learning how to become an investor. Many movie stars, wealthy professionals, or former athletes do that. Just remember that while following this path, you will have a very small leverage.
Are you interested in investment? Check out my other posts about investment here.
I recommend you to also read them:
- MAKE YOUR INVESTMENTS TO EARN
- THE DIFFERENCE BETWEEN YOUR WORK AND YOUR BUSINESS
- TAXES AND CREDIT DEBTS
- WHY ACCOUNTING KNOWLEDGE IS NEEDED
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