Mon. Dec 16th, 2019

DIY financial investing: What is a financial investment?

South Africa RandOver the next few weeks, we will look at simple DIY approaches to invest one’s own money.

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Now why on
earth would you like to bake a loaf of bread at home, or why would you choose
to fix your old broken chair yourself?

There are
quite a few good answers to this question:

  • You may save money.
  • You can get exactly what you want, be flexible and make changes whenever you prefer.
  • You can experience the enormous satisfaction that comes with mastering a new skill while knowing that you become more independent in doing so.

The reason to become a DIY financial investor is exactly the same. The emphasis is normally on the first point and the big financial advantages which may follow, but the other points are equally alluring.

Over the next few weeks, we will look at simple DIY approaches to invest one’s own money. It might seem like an ambitious project – but the truth is that there is really nothing to be afraid of. We do, after all, live in a world that has instant yeast and power tools! So DIY is easier and more fun than ever before!

What is a financial investment?

Celebrity Manchester United player, George Best, famously declared:

“I spent a lot of money on booze, birds and fast cars. The rest I just squandered.”

It is important to realise that there are many kinds of investments. Like Best, you can invest in experience, or you can invest in family and friends, or in your spiritual and emotional well being.

All of these, and many others, are arguably more important than financial investments. But ultimately it is important to be honest with yourself and not to confuse one with the other, because most of us will, one day, retire and live off our savings. 

And if you play your cards right, you may be able to stop working long before the normal retirement age and live off your passive income.

So here is our definition of financial investment:

A financial investment is an investment which beats inflation.

Is your car a financial investment? Is your family home a financial investment? Is the money in your savings account a financial investment? The answer to all these questions is probably “No”.

Next week we look at the reasons why, and then we look at those asset classes which are financial investments.

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