Aside from growing our money, we need to invest to beat inflation. Those of us who park our money in the bank become losers because inflation eats away our money’s purchasing power. What your money can buy today can no longer buy the same item in the future. That’s why Kiyosaki says, ‘Savers are Losers‘
However, before we invest, we must learn how to assess ourselves because there is no ‘best investment’ that is suitable for everyone. Each investment is entirely unique to you as the investor.
Earlier, I mentioned about how to evaluate your investments through risk, liquidity, and return. Today, we will tackle on another topic called “The Investment Diagram” devised by Aya Laraya when I attended a seminar conducted by Pesos and Sense last month.
The Investment Diagram
The investment diagram embodies the three major pillars when it comes to making the right investment decision – Time, Money, and Knowledge. Examine yourself if you have these three pillars present in your situation before making an investment.
Time. Time has two elements – the time horizon of each investment to generate a good return and the time you need to monitor your investments.
Time is your best ally when it comes to investments. Every investment needs time to grow. Whether it’s few minutes or hours in the stock market or several years when it comes to maturity of insurance products, there is always the element of time.
That is why it is always advisable for us to start early. The best time to invest is now while you’re still young. The younger you are, the better, because you will always have enough time to ride the volatility of each investment. You don’t want to wait until you are 30 or 40 to start investing. Use the power of compound interest to your advantage.
Moving on to the second element of time, each investment also requires your time to monitor it. You can’t just invest and forget and expect your money to generate good returns. As Robert Kiyosaki says: “The only difference between a rich person and and a poor person is how they use their time.”
Money. Meanwhile, when it comes to money, you should also know your sources of income. Do you have a retirement fund where you can invest in on a one-time-big-time investment? Are you a regular employee who can only invest a portion of your salary using the cost-averaging method? Or are you a freelance with no regular source of income?
Knowledge. Lastly, knowledge is important in every investment. In fact, it’s what separates the rich and the wealthy. When you are equipped with the right knowledge on your investments, you’re not susceptible to get-rich-quick scheme which commonly disguises as an investment where in fact, it’s a scam or fraud.
Where Are You in the Investment Diagram?
Time and Money. If you belong to a group of investors who have time and money, then you are in that area of the intersection of time and money in the investment diagram above. People who have time and money but without knowledge are investors susceptible to become victims of scams. They are the easy prey of people promising good returns for their money. As the old adage says, ‘if it’s too good to be true, it probably is.’
Time and Knowledge. People who have time and knowledge but without money are merely savers. They need to build their savings first before they can invest. A good way to build savings is to use the equation, INCOME less SAVINGS equals EXPENSES. That is, save first before you spend. Pay yourself first. As Warren Buffet said: “Do not save what is left after spending but spend what is left after saving.”
Money and Knowledge. A group of people belong to the intersection of money and knowledge but without time. Some of us belong to this group as we become busy with other matters. Most of our time goes to either working under employment contract for an employer or handling our own business.
If you belong to this group of investors, then it’s best for you to hire someone to invest for you. Managed funds such as mutual funds and Unit Investment Trust Funds are the most affordable as these require only minimum amount of capital. These funds are handled by professional fund managers who are experts in their own field. They will do the investment for you.
Time, Money, Knowledge. Among the aforementioned types of investors, people with time, money and knowledge are the best in managing their own investments. They have enough time to ride the volatility of their investments, the money to invest, and the knowledge about the investment they’re putting their money.
Once again, there is no best investment that is suitable for everyone. Each investment is unique depending on your situation. Assess yourself first on time, money, and knowledge before committing yourself into any type of investment.
Below is Aya Laraya’s explanation of his Investment Diagram:
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