Investing your money

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Investing in your studies and later on in your career or business is a very valid option to succeed in life. You do not necessarily need an academic degree to be a good investor or to be successful in business.

In particular, individual stock picking is not an easy task when investing. When researchers compared the results of experts picking stocks from a list with chimpanzees throwing darts at the same list of investment pasted on a board, the experts did not outperform the chimps. That is one of the reasons for the success of mutual funds that invest themselves in a pool of individual stocks or bonds.

It is widely accepted that entrepreneurs produce three quarters of the wealth in the world. Succeeding in business takes initiative, perseverance, speed, action, energy and a good brain, but it’s not rocket science. 

When thinking of how to invest, the investment portfolio theory is a good start. It says that the more you diversify your investments between asset classes the higher return you should obtain and with a lower risk, at least in the longer run.

Secondly, it is important to know who you are as an investor. What do you know about investing? What is your experience with investments? How do you react to a decrease in the value of your investments?

Thirdly, what is your time horizon? Do you need the money soon or can it be invested for many years to come?

If you are an entrepreneur, you will often invest all your money in your own company, and that is very logical. Yet by doing so, you have a 100% concentration of your investments in one single asset that is typically not very easily marketable, unless you have listed your company on the stock exchange. 

All of this only holds true if there is no major shock to the financial system. Most of you will remember the big financial and economic crisis that started in 2007-2008 and is still somewhat lingering on. During such time all the investment classes worldwide go down together, with no place to escape except maybe pure cash or gold. 

If there is one thing to definitely shy away from as a private investor, it is to borrow money in order to invest it on the stock markets in the hope of earning a higher return than the interest you have to pay on the loan. 

Last word of advice: if an investment looks too good to be true, has a much higher yield than comparable investments on the market, you will find either special stringent conditions in the small print of the product or someone is trying to steal your money. Have your money managed by well-known, trusted parties and look at how easily you can sell the financial product and get your money out.