Where to Invest. What Investments Interest You?
Many people think that investing is boring. They invest because they know it is a good idea, and they want their money to grow. If you ask people what they are invested in, a lot of them will say something like “I don’t know. I think it might be something like . . .” Many people don’t know because they just leave their investments in someone’s hands and hope for the best.
There may be a better way than just hoping for the best. Would you be surprised to learn that almost all successful investors not only know what they are invested in but usually take an interest in what investments they choose?
Two professors conducted a twenty year study of America’s millionaires and wrote a book called The Millionaire Next Door. Two things they found that most millionaires have in common is that they like their jobs, and they invest in the industries that they work in. So these millionaires are investing in an industry that interests them, and they are paid to follow it closely—because it’s their job. Consequently, they know who the winners and losers are in their industry, and they can see who will do well in the long term and who is headed for trouble. When these millionaires invest using this knowledge, they get really good results because they know what they are doing. This isn’t rocket science. It just makes sense.
So if you work in the retail industry, do you notice the companies who are doing things better than your company? Do you notice that these companies are innovating and consistently doing things right? Do you see them becoming much stronger players in your industry in the future? Are these possibly good companies to invest in? If you work in an industry, you should know the answers to these questions. You should be able to spot trends and identify the best companies sooner than any one else because you spend every workday in your industry. No one else can spend this kind of time getting to know an industry. Do you see how you can potentially use this knowledge to guide some of your investment decisions? You may also be positioned to glean some good insights into other industries that are related to yours. Talk to your suppliers, clients, colleagues and others you come in contact with. Most millionaires get rich just focusing on their industry. You can employ the same strategy and increase your net worth too (just make sure that you obey the law and don’t violate any of your industry’s ethics guidelines—we are not encouraging insider trading—investing in your industry is very different to buying and selling stocks based on privileged information).
This concept of investing in what interests you can be taken beyond your occupation. Besides your job, what sorts of other things interest you? Are you interested in cars, computers, fashion, music, travel, or something else? You could consider investing some of your money in other things that interest you. If you love cars and pay attention to the automotive market, you may have figured out a long time ago what car companies were positioned to do well and which ones were headed for trouble. If you are really in to computers, you may have foreseen Apple’s success. If you love to travel, the growth of the cruise ship industry may not have been surprising to you. If you are really interested in something and follow that industry, you will gain a strong sense of who the up-and-coming stars are and who are the falling stars. You can put this kind of knowledge to work in your investment portfolio and make some money off of what you are already interested in. Millionaires do this, so why shouldn’t you?
There are plenty of other advantages to investing in what interests you. If you find some of your investments to be very interesting, you will probably check up on them more often. While you are at it, you may look and see how the rest of your portfolio is doing compared to your favourite investments. Paying attention to your investments like this will probably help the growth of your investments in the long term.
Many people don’t make changes in their portfolios at the right times because they are waiting for someone else to tell them what to do. Unless you have hundreds of thousands or millions of dollars to invest, no one is going to call you up and tell you that you should move some of your money out of one area and move it to another (if your investment person does this for you, you’re lucky). If you, however, are following an industry on your own, you will be able to see when the winds are changing, and sense when it is time to move around some of your investments. Having said this, it usually isn’t wise to make big changes to your portfolio on a frequent basis. Any decisions you make should be long term. Although it is wise to check up on your investments every once in a while, for most people it is best to make a good decision and then stick with it until you believe you have reached your target or there is some thing significant that has persuaded you to change your mind.
Investing successfully is a learned skill. No one is born with it. Take advantage of the knowledge and expertise of others as you learn to make wise investment decisions, and never put all of your eggs in one basket. Never invest all of your money in one industry or in one company. Everyone is wrong at times, and if you are wrong, you don’t want your mistake to devastate your portfolio. Exercise caution and prudence and listen to the advice of others.