I know that title sounds a little weird. Maybe “Can You Learn Everything You Need to Know About Investing in One Weekend” is more accurate.
Anyways, I started thinking about this after reading a post on reddit/personalfinance. The original topic was about how to get started with investing and somewhere in there a discussion popped up about whether or not it was possible to educate yourself on investing in as little as one weekend.
But first things first, I need to clarify what I mean by investing. I like the following definition:
[To] expend money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture.
Expectations vs. Intent
The only change I might make is with the word expectation – I think intent is more suitable. For example, people expect the value of their homes to increase over time while at the same time they build equity that can be tapped into. Others expect stocks to appreciate in value over time so that they can be sold for a profit.
But put it another way – people intend for their home to be a source of equity, income, or stability in later years, and people intend to generate a profit by purchasing stocks that are undervalued – and investing suddenly sounds like a thought-out financial approach rather than gambling.
So we use the word intent to imply that our investing is done with a plan, an end goal in mind, after thought and consideration, and the awareness that what we’re doing has risks but that if we’re flexible we can mitigate those risks. Intent implies having a purpose and a reason.
Expectations imply hope and depending on things that may or may not be within our control. Evaluating and revising intent is less painful than experiencing disappointment (unhappiness) and revising expectations.
So, What’s An Investment?
Traditionally, deprecating assets like a car, computer, an iPhone aren’t considered investments. Then there’s also “investments in your self”, like education, health, a life coach…not investments either. Or are they?
Remember, investing is simply spending money (after planning, establishing a goal, and understanding the risks and consequences) on something with the intent of generating a profit or material result. By this definition a car could be seen as an investment. It could reliably get you to and from work, give you the flexibility to earn more income, and make you more productive and efficient – all things that can result in profits or material results.
This is where we start talking about “good investments” vs. “bad investments”, and we’ll use the car as an example. A car that is reliable and cost effective (when compared to other modes of transportation, and in terms of both money and time) and is capable of helping you achieve the goals you intend to by using it could be seen as a good investment.
The opposite (a car purchased without consideration of it’s use and cost prohibitive compared to other modes of transportation) is probably a bad investment. If you bought it with the intent of achieving a profit or material result, you could probably make the argument that yes, buying a car is a “good investment”.
Let’s read the (updated) definition of investing one more time:
[To] expend money with the
expectation intent of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture.
I highlighted the last part because I want to point out that property is included as something you can invest in. While most people might assume this means real estate, the example above shows that that can mean any property.
Taken literally, any money that you spend on stuff – no matter how frivolous it is – could be labeled an investment.
What about someone who put their money into a 401k, expected certain returns and then got frustrated and scared when the market went down, sold at a loss, and now won’t touch anything other than a checking account? Compared to the car buyer who has an asset that they could turn in to cash if need be, the 401k holder comes out looking worse for wear.
The point of the above example, as backwards as it may seem on a personal finance blog, is that investing is really just spending. Your goal is to generate profits or material results. What you spend money on to get those results (and what those results are) is up to you.
After understanding what results you want, you can explore ways to get those results and develop a plan. And Boom! You’re spending with intent rather than with expectations, ready to act instead of react.
Oh Yeah, The “One Weekend” Thing…
I started this post by wondering if it was possible to learn enough about investing in one weekend to, you know, know what you’re doing. By determining what “investing” really means, not just to us personally but in the realm of personal finance, we can start out with at least an idea of what we’re trying to do here.
For most people, Investing brings up images of the stock market, 401ks, and maybe even a little Wolf of Wall Street. Our goal is to show that like most personal finance topics it’s really not as scary or complicated as it seems.
Below is a selection of articles that I think are more informative and thought-provoking than any book you can buy. They cover the idea of investing in general, and primarily focus on stocks and real estate. One theme tying them all together is that they speak to the goal of creating passive income – income that you earn just by owning assets – which translates into more money for your time and essentially more freedom.
I’ve calculated the estimated time needed to read them all and you’re looking at about 3 hours of reading. That’s it. For those of you who want to get more in-depth, I’ve included a link to Jim Collins’ famous Stock Series – most aptly described as amazing. If you want to read through all 30 posts it’ll take around 5 hours. Enjoy!
Dividend Investing vs. Indexing – Ten Factorial Rocks!
Image by Sira Anamwong at FreeDigitalPhotos.net