What is Balanced Investing and Why is it so Important?
In a previous blog "what is the difference between savers, investors and traders" I discussed how there are lots of different types of investments and how they filter down into just 4 categories - Business, Property, Paper and Cash. This article goes into more depth about the categories and how you would benefit from a balanced investing approach
The image above shows how you invest in all four categories at different levels and the tools used to bind the investments together.
Why Do We Use 4 Categories?
The way the financial markets work there are always investments going up while some are going down. Even within each category there will be some investments up while other are down. The nature of some of the investments means it is often difficult to move your money around quickly to take advantage of the movements. Balanced investing allows you to have investments in each category taking advantage of the growth opportunities while providing time, if required, to move out of one investment into another, without losing the early benefit of low prices and potential growth.
For example, if the property market is down and the share market is in a growth period, it is very difficult to quickly sell property so you have the cash to invest into shares. Having a cash rich business will provide the income or even investing in bullion gives you an asset that can be quickly sold providing the liquidity to be able to invest in the share market.
The balanced investment approach ensures you are always able to take advantage of whatever the market does.
Why Different Investments in each Category?
Let’s look at the business category. As I write this article the High Streets are struggling due to the immense overhead costs they have before they can think of making a profit. Many businesses are closing down and people are losing their jobs. Yet, there are business types that profit during these difficult times. They are Network Marketing and Information Products (Internet Marketing) as people whose jobs are at risk, or who have lost their jobs are looking for quick and easy ways to make money.
During economic downturns (recessions and depressions) these type of businesses become the growth areas within the Business Investment Category. My clients in the UK laugh, when I talk about Fish & Chip shops being a recession proof business. When money is tight, people can’t afford to go to restaurants like they once did so the treat becomes takeaway foods. Fish & Chip shops are an easy, cheap treat for a family.
Network Marketing has phenomenal growth during a recession. Investors who start Network Marketing Businesses find they have accelerated growth during this period. Starting and slowly growing a business, during good times, means you have everything in place ready to take advantage of a downward market.
Within each of the 4 investment categories – business, property, paper and cash, there are numerous investments all reacting differently to the market place. Having investments in all categories ensures you can react to whatever the economic conditions are.
Patience and Learning
While I advocate 4 category investing, I also teach 4 levels of investing – Foundation, Income, Growth and Speculation. Starting with the Foundation level and building on skills and knowledge until you become an expert at what you do when you can then enter the Speculation level of investing. If you try to go straight into Speculative investing you will lose your hard-earned money and be disillusioned with investing.
So, what are the 4 investment levels?
Foundation – this is the introduction to investing. Learning very simple strategies in each category that provides a base on which to build future investments. The base is slightly different in each investment category. In the cash it’s starting with buying small quantities of gold and silver bullion. In business it’s making sure the infrastructure is there to operate the business. In shares we start with lower value, less volatile shares and in property we start with smaller properties generating regular income. The foundation is about making sure you start with a solid base of knowledge and safer investments on which to build for the future. It’s where you start to learn about investing.
Income – the next level of investing is getting the investment to the level where cash is being generated at slightly higher levels than the foundation. As your skills and knowledge grow you can start implementing different strategies that generate higher income. Sufficient to support you and the investment. When you have enough knowledge and income to increase the types of investments you have you then move onto…
Growth – investing more money into growing the capital side of an investment to the stage where it is almost self-supporting. With guaranteed income from the Foundation and Income levels of your investments the growth area can include some riskier investments which could produce exponential growth and income. At this stage you are still growing your knowledge and skills but can now try different strategies as you have a better understanding of investing and a much broader knowledge.
Speculation – these are higher risk investments such as Forex, Spreadtrading, Options etc. that produce very high returns. These investments are very high risk. You can lose a lot of money in the blink of an eye. On the other hand, you can have one investment that works often produces more money than you lose in all the other investments. Due to the high level of risk we only look at these types of investments once you have mastered the other three levels and have a solid base and plenty of cashflow.
It takes time to build your skills and knowledge in all 4 categories and on the 4 different levels. Having the patience to master them will guarantee your wealth and success.
Each category and each level has the potential to create millionaires and dream lifestyles but when the 4 categories and levels work in synergy then there is unlimited potential.
The one thing that most people struggle with is patience. The patience to take the time to learn about investing. The patience to start implementing what they are learning and the patience to allow the investments time to grow so they can reap the benefits.
We now operate in a global market. One that ensures the financial markets move every second of every day of the week somewhere in the world which then impacts on our local markets. Building a balanced investment portfolio based on all 4 categories ensures you always have an investment that is going up in value.
For more information about private coaching or group investment training visit www.2pound73Club.co.uk