Investing is an incredibly interesting topic. It’s one of those things that everyone knows they should be doing, but few people actually do early enough because they’re not sure how to get started or what is the best way to trade. One thing that tends to trip new comers up quite a bit is deciding whether to invest in short term investment vehicles or long term investment vehicles. Today, I’ll explain why slow and steady wins the race.
The Basics Concept Of Investing
Before we get too far in this article, let’s talk about what the basic concept of investing is. Essentially, investing started off as a simple idea. I put my money into a company. These funds give the company the money it needs in order to grow. In return, over time, as the company grows, not only do I earn dividends, my initial investment grows along with the value of the overall company. This simple concept lives on today. However, as time goes on, greed kicks in and more and more investors are abandoning this traditional investment model and looking for fast paced investments.
The bottom line here is that there are several short term investment models such as binary options – which is fraught with scams., Penny stocks – think Wolf of Wall Street or Forex – also in the scam zone. However, it must be said that while some people are effective in these investment vehicles, most will lose. So, do everything you can so that you don’t get caught in the web of enticing short term trading. The bottom line is that you have much better chances of growth if you take a traditional approach to investing.
This Is A Huge Mistake
The truth is that the traditional investment model is a great way to go. Through this model, your money grows. Sure, it grows slowly, but all in all, it will grow. However, as human beings, we are very emotional creatures, and the emotion known as greed is starting to take over in a big way. Today, we’re seeing more short term investment vehicles available than ever before. Nonetheless, short term investing is a big mistake 9 times out of 10. The reason for this is relatively simple.
When we invest in a company, commodity, currency or any other financial asset, what we’re really doing is making a prediction. Essentially, when we put money into a financial asset, we’re predicting that the value of that financial asset is going to grow over time. Even when we get involved in short term investments, we’re making predictions. However, the less time you give a prediction to come to fruition, the lower your chances are of being correct.
Let’s put it this way. Let’s say that I’m making a prediction that it’s going to rain in the Mojave Desert at some time this year. Statistics show that it rains in the Mojave Desert 2 times per year on average. So, making a prediction that at some point this year, rain will hit the Mojave gives my prediction an incredibly high probability of being correct. Now, let’s shorten the time my prediction has to come to fruition a bit. Let’s say that I’m making a prediction that at some point over the next day, it’s going to rain in the Mojave Desert. Shortening that time frame takes my correct probability on the prediction from 99.9% to around a half of a percentage point.
This same concept goes along with investing. If I purchase Apple’s stock today and hold it for a year, chances are that I’m going to end profitable. Historically, Apple has seen strong year over year growth, meaning that I can expect to see the same thing moving forward. However, if I purchase the stock this morning only to sell it tonight, what I’m really doing is flipping a coin and hoping for growth. It simply doesn’t work as a strong investment model!