Become a better investor
Lesson in Course: Investing basics (beginner, 3min )
Squirrels are investors. Are we investors?
Squirrels are a fairly common sight. They're obsessed with nuts and bird feeders, and here's a mind-blowing fact: some squirrels bury up to 10,000 nuts every fall to prepare for the winter. Every year, squirrels forgo consuming some of their resources today so that they can enjoy them tomorrow. Some of those buried nuts grow into trees that will produce even more food for them in the future. This behavior is investing in a nutshell.
Investing is something that we already do, whether we are aware of it or not. We are investing as we juggle our resources like time, emotions, and finances daily. We can all become better investors with a bit of patience and practice.
When we invest our money, we buy assets with some of our money today, expecting that our investment will be worth more in the future. The amount of additional money we made from our investment is our return.
There are a few common misconceptions about investing that prevent many people from getting started.
One of the biggest misconceptions is that getting started requires a lot of money. In truth, we don't need any money to open an account! Many companies allow us to open an account with no minimum deposit. They also allow us to make our first investments with less than $100.
All we need in order to invest is a little bit of time and money, usually less than we realize.
These are some other popular misconceptions:
Some people treat the markets like a casino, trying to get rich quickly by placing short-term bets. The lesson about speculating vs investing will show us how this behavior is different from investing.
Investing does require taking a risk, but how much risk depends on how we invest. We can lower risk by investing in many types of investments, not just stocks. We don't have to pick the "perfect" investment. The odds of losing money drop close to zero if we hold a wide variety of investments that look like "the market" for the long-term (10+ years). Investing is exciting, but it can also be very passive, checking on our portfolio once every few months if we want.
If you haven't started investing today, try to identify the reasons why you haven't. Some of them could be the mentioned misconceptions. The sooner you start putting together a plan, the better you can prepare for the future.