Jay Smith @jaynemesis: "𝗪𝗵𝘆 𝗗𝗼 𝗪𝗲 𝗜𝗻𝘃𝗲𝘀𝘁? //𝑝𝑎𝑟𝑡 𝟷..."

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𝗪𝗵𝘆 𝗗𝗼 𝗪𝗲 𝗜𝗻𝘃𝗲𝘀𝘁? //𝑝𝑎𝑟𝑡 𝟷 𝑜𝑓 𝟸 - 𝑆𝑒𝑒 𝑐𝑜𝑚𝑚𝑒𝑛𝑡𝑠 𝑓𝑜𝑟 𝑝𝑎𝑟𝑡 𝟸 𝑜𝑓 𝟸 Today’s post isn’t an analysis of a company, discussing an investment theme, or thesis. It’s going back to the basics. Why do we invest? What is compounding growth? How powerful is it? Most of us now take these questions for granted, but I think it’s good to loop back and remind ourselves of the basics once in a while. 𝙒𝙝𝙖𝙩 𝙄𝙨 𝙄𝙣𝙫𝙚𝙨𝙩𝙞𝙣𝙜? No question is too dumb when you first start out, so let’s break down the most basic concept of this entire thing - What is Investing? The idea of investing is relatively simple: we sacrifice value in the short-term, with the expectation to gain greater value in the long-term. The obvious example is with money, we lend it out in various forms and get paid back with interest in the future. Another form of investment is through time. We invest time in learning through education, or developing new skills so that we can get better long-term income through better jobs, or fixing something in our homes through DIY skills picked up with time and effort in the past. For most people, the most powerful form of investing is with money. We let our capital work, while we work for more capital. Our money makes us more money while we are busy leading our lives. 𝙒𝙝𝙮 𝘿𝙤 𝙒𝙚 𝙄𝙣𝙫𝙚𝙨𝙩? The short answer is profit. The longer answer is security. Investing offers us protection from the unexpected costs life throws at us and a secure future without money worries in our old age. Investing is all about optionality. Money can’t buy happiness, but it can buy amazing holidays and experiences, the freedom to say no to work that isn’t fulfilling, more time by retiring early, or those impulse purchases you later question. Some people invest with a goal in mind already, others might not know what they need the money for yet, but know it will eventually be useful. If you’ve never stopped to think about your reason for investing, take a few minutes to consider it. 𝑯𝒆𝒓𝒆 𝒂𝒓𝒆 𝒂 𝒇𝒆𝒘 𝒆𝒙𝒂𝒎𝒑𝒍𝒆𝒔: • Property, or a major renovation • Gap in work/studying to travel/explore • Retirement, topping up your pension • Major purchase/event (car, wedding, etc) • Family’s education (university, private school, etc) • Business start-up funding • Philanthropy/charity • Nest egg/starter investments for child All of these come with different time horizons and risk tolerance levels that will also relate to your personal situation. How long do you have to save? How much can you afford to lose, etc. 𝙉𝙤 𝙁𝙧𝙚𝙚 𝙇𝙪𝙣𝙘𝙝 As alluded to above, investing in any form involves risk. Broadly speaking, the higher the potential return is, the greater the risk. This is usually also linked to volatility - more volatile investments are usually more risky, but even the safest investments carry some risk. My mum copies me here on eToro, but she’s generally extremely cautious with investments. She likes government bonds - low risk, or just to keep money in fixed-term savings accounts. I discussed with her that although she might get 4% interest guaranteed for 5 years, it still comes with risk. The currency she’s investing with could lose value against others, inflation could rise by more than the interest rate, meaning she’d be losing spending power. At the opposite end of the spectrum, I’ve witnessed some of my own investments in start-ups and some riskier cryptos and stocks fall to 0. However, by diversifying, I’ve also benefitted by some that have grown by over 2000%. There is no such thing as a free lunch, if something sounds too good to be true, it probably is, and there are likely hidden risks you aren’t seeing. //𝐸𝑛𝑑 𝑜𝑓 𝑝𝑎𝑟𝑡 𝟷 𝑜𝑓 𝟸 - 𝑆𝑒𝑒 𝑐𝑜𝑚𝑚𝑒𝑛𝑡𝑠 𝑓𝑜𝑟 𝑝𝑎𝑟𝑡 𝟸 𝑜𝑓 𝟸 $SPX500 $NSDQ100 $GBPUSD

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GBPUSD

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