What is it?
Investments can be defined broadly in two categories: paper assets and real assets.
One way to look at investment is to see it as the process or design of continuous capital formation: initially, you invest time and effort into capital creation, which ultimately will determine the size of the final capital formation. With this is mind, however, it is important to also see investments as the creation of wealth. As such, we should place a significant value on the benefits to be derived from investments. We look at four areas in particular.
Market venturing, or trading, involves two different stages. The first stage is called “planning”. Through the planning stage, you determine where to invest, how much money or value you are willing to invest, and your time horizon, i.e., the time horizon over which you would like to achieve returns. After you have determined where, when and why you should invest, you now need to conduct some portfolio or probate injection. This is the actual injection of capital into your business or investments.
This is the stage where you identify the potential of your product or service to achieve wealth. The goal is not only to identify the opportunities, but to ascertain the degree of distributions from opportunity to chance so that your investments are complementary to your goals. An investment strategy is a plan of action that provides a road map to your potential success. The better your plan for your investments, the more successful your investments would be. In addition, your investments would have a higher probability of success, as well as a greater chance of occurring over time.
Secondary investing refers to the reinvestment of your invested capital. Investments that go back into the same investment, at a later date, tend to generate a return. Postponing your capital is what most financial advisers will tell you to avoid, because the capital that you’re already investing into your business is not generating any return. Also, what most financial advisers will not explain to you is that the size of your returns don’t depend on the time you reinvest your capital. These returns also go into producing your original capital investment, and can continue generating returns on your original investment regardless of time. This is an important distinction to make because many of the people in the financial services industry will tell you that it is wrong to sit on your money. In fact, from a basic financial point of view, once money is free, it no longer works for you, but for the financial services company that gave it to you.
The concept of secondary investing is relatively new, but is gaining influence in the investment world as a competitive advantage for investors. One example is when you are making a decision to trade in a particular stock for two reasons. The first reason is to buy a particular business, as represented by the underlying stock, because of positive market momentum. The second reason is because you are anticipating the price to go up a bit, say at 20%. You will then buy back the stock from the investor at 20 after the stock has risen a bit, say from 12 to 15. By researching companies like this, you gain an understanding of how market momentum can drive a stock price upward or down.
How do you use these primary and secondary investing concepts to determine how to invest your money?
Using your own needs as a guide, determine the investment vehicle you may feel comfortable with. The most successful investors have created nest eggs by investing in multiple investments, and knowing which investments may be right for them at certain times. Odds are, if you are invested in a primary or secondary investment, you want to be invested in something that provides a high probability of generating something you want. These investments may be in a wide variety of areas, such as Real Estate, Commodities, Gas, and many others.
During times of market turmoil, such as the period of 2008-2009 we experienced, many investors chose to invest in the underlyingstocksand gas, knowing that once the prices went up again, it was bound to fall again. In this same manner, during periods of strong earnings such as in the years 2006-2007 and 2008-2009, many investors chose to again invest in oil because they knew once the prices went up once more, it was bound to go up again.
By researching both high probability and low probability investments, investors were prepared to jump into any investment opportunity that presented itself during certain times. That gives us two examples of secondary investing at work, giving us a means to create wealth on a continuous basis.
High probability investments give us the direction we are trying to achieve, whether we choose to build a business or start a home-based business, or whether we follow our passion and become creators or entrepreneurs. As you grow your money through secondary investments that move your money around multiplex ways, you invest in low-risk, high probability opportunities on a continuous basis.