IN-DEPTH GUIDE ON INVESTMENT INTELLIGENCE

  • Post category:Personal Finance
  • Reading time:10 mins read

Investment intelligence is rare among men. Investment is the hardest level when it comes to personal finance management. It is deeper and it requires more knowledge and skills. Bad investments can cost you your hard-earned money.

However, we cannot fail to invest because of the possibility of losing money. The possibility of losing money is greatly reduced when we gain investment KNOWLEDGE and SKILLS. If you try to avoid the risk of losing money, you also avoid the joy of potential gain.

Risk-reward relationship

In investments, you cannot afford to play it safe. This is investment intelligence. There is a concept called high-risk high reward in finance. If you want a high reward, you have to invest in arguably risky projects. Projects that earn people high returns always come with a considerable amount of risk.

So, if you avoid the high risk, you are also avoiding the high returns. The greatest investors are risk-takers who try to reduce the risk by making informed decisions.

Risk-averse investors hate risk. Risk-averse individuals always seek to reduce risk as much as possible. Some seek to reduce the risk by doing thorough research on investment projects while others avoid risk by not investing in risky projects.

The former are ready to invest but only after they have all information at their fingertips. The latter are the people who never invest. That is where many people are. Most people would rather put their capital in a project that has low guaranteed results rather than put it in a project with high returns that are not guaranteed.

Risk aversion

In psychology, there is a concept called risk aversion. It implies that people tend to fear losing more than they love gains. If someone is given two options with probabilities of occurrence, they will choose the one that helps them avoid losing. Human beings hate losing.

That is why many people would rather fit in than risk losing their friends. People would rather play it safe to avoid losing money. People would rather keep quiet and not say the truth to avoid losing a relationship or a friendship. This is just how human beings are, we have an inherent fear of losing.

If we are to succeed, we have to overcome this fear. People who take risks also fear but they do not allow the fear to stop them from doing what they have to do. The act even in fear. Their love for financial stability exceeds the fear of loss. They understand what when we fail, we learn. It is only when you do not learn that you become a failure.

If you fail, learn, and rise to do it in an informed way this time, your failure was a success. I call it successful failing. This kind of failure is very important. Therefore, there is no one time you will ever fail to fear when you are investing in a project that has some probability of failure. The secret is not to allow fear to stop you from doing what you have to do to get financially stable.

You have to decide the amount of risk you are ready to take because you cannot eliminate risk. Even investing in government bonds has some amount of risk. The government can go broke, a tyrant can take over the government, and so on.

Generally, I am a risk-taker but I am also an analyst. I do my research thoroughly before I put my cash into a project. Despite that, I have lost money so many time but that does not make me coil back and accept failure. I keep looking for more investment opportunities because, with good due diligence, success occurs often than failure.

Money working for you

Investment intelligence entails having money work for you. It is the opposite of a job where you work for money. You invest what you have saved from your income. The more you save, the more you will have to invest. This is why the other two levels (Earning and spending) are also important to understand. Investing is what makes people wealthy.

All successful people are good investors, they know how to allocate money for it to earn them more money. Even if you never went to school, with knowledge in this area, you can be wealthier than a person with a Ph.D. but does not know about investment.

The main objective of saving

 The main objective of earning and saving is to invest. This is the mentality all wealthy people have. Poor people work to pay bills while wealthy people work to invest. This does not mean that wealthy people do not have bills to pay, it just means that investment is a priority to them rather than consumption. It is all a mindset. You have to work with this objective in mind.

Where you are employed or in self-employment, your main reason for working is to get money to invest. Do not work to buy a car, going on a holiday, paying school fees, or any other form of spending. Work to get money to put in a project that will bring you even more money. This is investment intelligence

The good thing with money working for you is that it can work for 24 hours per day without getting fatigued. It does not require any salary, it does not go for leave and it does not require supervision. Money can work for you even in your absence. When people grow old or sick and they cannot work any longer, it is what they have invested that gives them a livelihood.

Money is very loyal to its enlightened masters. It loves to work for people who worked for it. It reciprocates your kindness and love for it. This makes investment the best way to keep getting income. Instead of having to work in a job for life, invest and let money do the work.

Assets and liabilities

Understanding assets and liabilities is the basics of investment intelligence. For you to be a good investor, you have to understand the DIFFERENCE between an asset and a liability. Many people are poor for not understanding this difference.

According to Robert Kiyosaki, an ASSET is something that earns you money. A LIABILITY is something that costs you money. This simple understanding can make a whole lot of a difference in your financial life. The secret to wealth is to keep investing in assets that generate income for you.

For example, a personal car is a liability because it consumes fuel and requires maintenance. It is not an asset because it does not generate any income for you. A commercial vehicle is an asset because it brings you income. Both of them are cars, they may even be the same model but what they become to you depends on how you USE them.

A house is a liability because it incurs expenses. However, a rental house is an asset because it earns you income every month. You can classify everything you have and see what you have been investing in.

Have you been purchasing assets or liabilities? The difference is in whether they bring you income or not. Do this AUDIT and if your liabilities are more than your assets, you need to change your financial path if you are to get wealth.

No one should buy liabilities before assets. Many people get a job and even before they do anything else, their first objective is to buy a car. This is very wrong. The liability will consume all your salary and you will never have anything to save and invest in income-generating assets.

Liabilities should be bought through the returns you get from assets. If you want to buy a car, first invest in a business and use the profits to buy the car. Invest first in assets and let them help you buy liabilities. This is what wealthy people do. If you buy more liabilities than assets, you will remain poor and average for the rest of your life.

Some income-generating assets may include businesses, real estate, shares and bonds, valuable commodities like gold and diamond, intellectual properties, etc. Always remember the basic rule; never invest in what you do not understand. The first step is to LEARN as much as you can about the investment project before you commit your money. Do your due diligence all the time before you invest.

Word of caution on investment intelligence

In the world of investments, some very many fraudulent individuals would want to have your money. They have fake company registration documents, they have fake title deeds, they present fake deals and this is a sure avenue of losing money. I have heard of people who were conned by people who were presenting them with an investment opportunity.

The first rule of investment intelligence

The first thing to remember is that when the deal is too good, you have to think twice. If it sounds too good to be true, pause, and think first. Always buy time before you commit money. The bad deals will always promise heaven but they end up taking you to hell. If the returns that you are being promised are very high, you have to think twice.

Many people have been conned as they try to get rich quick. In investment intelligence, slow but steady is the surest way. If you are not an expert in investment, it always good to CONSULT an expert before you commit money to avoid being conned. You can talk to a financial advisor or a lawyer to ascertain that the deal is genuine.

Investors are always doing their research to get the best deals before everyone else. The best deals are never publicized, they are gotten by people who are out there looking for them. The best pieces of real estate are not those that are sold by property companies but by the owners themselves. These opportunities will never get to the papers or any mass media platform.

The only investors who discover them are those who are actively looking for them. When people publicize something, mostly it is fake or usually very expensive. Due diligence will help you get the best deals before anyone else does.

When you are making investments, always NEGOTIATE. This is a cardinal rule. Even if the deal looks good, always negotiate. People will always put the asking price higher than what they are ready to accept. If you have one million to invest in a piece of land, always negotiate even if you get a person selling you the land at 900k.

The extra amount can be of great use to you. People nowadays never negotiate deals. They think negotiating a deal is a sign of poverty and lack. It is not. Negotiating every deal is a sign of professionalism in financial management. Push for the best deal always.

When negotiating, always mention an EXTREME figure first. If you have a million to invest in a piece of land. Start with a figure of around 600k-700k. The seller will also try to start with a higher price say 1.3 million. Raise your figure 3 times or more before you give up. This is what experts advise. Three times are enough to break your counterpart’s hard-line.

This will save you money that you can use to invest in another project. For you to make wealth, you have to become so good at negotiating that you always buy products below their average market price. This is called value investing. Buy something that is undervalued and you will have created value for yourself. This is what sophisticated investors do.

Final thoughts on investment intelligence

Investment intelligence is as easy as shown above. You need this investment intelligence to progress financially. You owe yourself a good life. This can only be achieved by mastering this subject.

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