Who Knows What The True Definition Of An Investment Is?

Why do so Many People Fail When Investing?
sketch of a conglomeration of investment vehiclesMany people persistently fail, sometimes woefully when they try to achieve their financial goals through investment. This happens because they are not aware of the principles at work behind successful investments. You cannot win a game without knowing its governing rules. Many people do not even fully comprehend what an authentic investment is and how it should work. It is a procedure of purchasing an asset that will generate sufficient capital growth and/or income in order to make a healthy profit. Investment is valuable in the sense that it has some inherent value and it is useful for the investor.

You cannot claim something is an investment unless it has value for the individual. The monetary worth of investment, whether it is in the form of gold or real estate, is the realised value of the investment. Pay particular attention to the wording of what a true investment is, as it will provide a clear understanding of what a real investment should be.

In addition to its intrinsic value, all truly successful investments have the ability to also generate income for the owners. You cannot consider something as a true investment unless it helps to generate income. This applies to everything investment related, even though it may be very valuable like a diamond or precious jewellery. From the above description, it becomes clear that for anything to classify itself as investment, it should not only be valuable but also have the ability to generate income for the owner.

The Fundamentals Must be Applied
Many people fail to recognize the fact that a possession only becomes a true investment once it fulfills both the necessary conditions ofVery large diamond standing on its point having value and also the ability to generate income. They often believe that something of value is an investment vehicle whereas in fact it may actually be depleting their income. Such a misconception has resulted in very costly mistakes in the cases of many individuals in the past.

The main reason why many people make this mistake of treating something valuable as an investment vehicle is because of the description of an investment as an asset found in educational and academic journals and publications. Thus business owners erroneously treat their valuables as their investments even when they are not generating any income for them or their business. This misconception is more prevalent among illiterate or investment ignorant individuals and families, where it is not uncommon to see liabilities being treated as assets.

The True Characteristics of a Real Investment
man looking through binoculars at the base of an ever increasing row of gold coinsAn inalienable characteristic of a true investment is, besides holding value, it without question must also be income generating. In other words it must create positive cash flow for the holder of the asset. A basic fundamental of any investment is it has the capacity to create wealth; it has capacity as well as function and obligation. Any property, belonging or possession that is not generating income for the holder, or at least assist the holder to produce income, irrespective of how valuable or how precious or valuable it’s claimed to be is not and will never be a true investment.

It is somewhat unfortunate that some people, in the absence of knowledge, consider some of their valuables as financial investments worth saving for their future. This happens because of financial ignorance that is widespread in some societies and cultures across the world. It is ironical to see people treat the valuables that eat away at their income as their investment. In such cases, individuals and families find that their future is ruined and they are left with no wealth in the end. This is the reason why it is necessary to eliminate financial illiteracy among some sections of the society.

From the description that has been given above, it becomes clear that before treating anything as investment, you should take a look at its value first. Higher value of course renders the thing as better for investment. Now the second question to ask yourself is whether it is capable of generating any income for you or not. If it is not income generating, it is not an investment at all. In fact, you should treat it as not an investment but as a liability for yourself.