When I mention the word investor, do legends of the investment world like Warren Buffett or John Templeton come to mind? Perhaps you think of a major investment bank or a variety of Hollywood movies where Wall Street personalities dream up clever — and sometimes immoral — ways to grow a vast amount of wealth. Most of the time, these bigger than life images of investors tend to make us think that this is a world reserved for a special few, when in fact this is far from the truth.
Whether you are already investing in some kind of financial instrument, prefer to just hide money under your mattress or feel you can only dream about saving or investing, it is important to understand — we all are investors. Yes, that includes you! Every day you are trading something of present value for the hope of a future reward. Here’s the point: Whether it’s your time, talent, or your treasure (money, real estate, or a business), you’re putting something at risk in exchange for something you expect to be more valuable at some point in the future. For example, when you invest your time at work, you expect a paycheck. When you pursue higher education or another certification, you might anticipate a career advancement. With your treasure, you make a financial commitment with the expectation of a current yield or some kind of growth down the road.
Since we’ve now established that you are an investor, there are three fundamental principles I want you first to understand as I begin a series about investing over the next several months.
- You are always investing in something. Grasping this concept will help you understand the true bottom line. The question isn’t whether or not you are investing, but is rather “What are you investing in?” This concept applies to much more than financial assets — it applies to everything you are and everything you do. Ultimately, there are two things that will outlive us and last for eternity — God’s Word and people. An impressive balance sheet is meaningless unless God owns it all and redeems it for His purposes in your life.
- All investment entails a measure of uncertainty. You may recall in the Parable of the Talents in Matthew 25 that not only does one of the servants entirely avoid investing his talent, he actually packs it away like an unsown seed. It cannot bear fruit. This servant had an asset that he didn’t put to work because he was afraid of what might happen. The other two servants understood that they were not given assets simply to keep and enjoy but rather to do their best to leverage them for a future reward.
- There is no perfect investment. Looking for the ideal can quickly become an ordeal! There are three essential characteristics to every investment that you need to acknowledge: 1) Risk because you are exchanging something certain for something uncertain, 2) Delay since you’re exchanging something present for something future, and 3) Hope of Gain since you’re exchanging something you consider lower in value for something you consider higher in value. When you make an investment, you have decided that the risk and delay are worth the potential gain.
From my professional observation, what is often missing is a basic understanding of how to build wealth prudently and make it grow effectively over time. It gets complicated! And it is impossible to eliminate all the unknowns — the only thing certain about the future is that is it uncertain. The best way I know to minimize overall risk is to first have a plan in place to eliminate all consumer debt and second to build an easily accessible emergency fund of three to six months living expenses. This enables you to ensure that even if a particular investment does not work out, you will have enough resources to meet your basic obligations.
In the next two articles in this series, I will explore nine questions you can use to help evaluate your own financial investment decisions. These principles can help you avoid some common mistakes, help you understand more about your investor personality, and help you focus on what really matters!
Now that we have our foundation in place, Warren Buffett look out!
Becoming a Wise Investor
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