This is a short follow up post to the previously talked about investment myth that “you need a lot of money to invest”.
Lets recap some of what we learned from the previous myth:
- Its a myth propagated by those who usually don’t actively invest on their own.
- Money is just the physical resource that you would use when investing. Knowledge is the real key which allows you to grow a small sum of money into a larger one.
- Knowledge enables you to select investments, knowing at what price to buy, and at what price to sell. It allows you to repeat the process.
- Many successful investors were able pick a greater number of good investments than bad ones because of knowledge. Most started with a small amount of money.
- Most lottery winners have large amounts of money, but end up losing it all due to lack of knowledge.
The related myth is that “it is easier to make money with more money”.
The Ability To Generate A Good Return
The ability to create good return (percentage) is more important than the amount you start with. It is also more important than the total amount that is generated from an investment.
If an investor has the ability to take $1 and make $2 with it, that would be a 100% return on investment. What that means is that they know how to make a 100% return with any amount of money. If an investor isn’t able to make $2 with $1 worth of capital, then it doesn’t matter if they had $1,000,000 to invest with. Without that ability, they would likely just lose all the capital.
Concentrate On The Return (Percentage)
When you look at your investments, the return percentage is more important that total dollar amount itself.
Let’s illustrate this with an example of a small $1000 holding. If you are able to generate $100, it is a double digit return! But what it also means is the $1000 worth of capital was being put to work in an efficient manner. Let’s look at another example, where a $10,000 investment generates $500. It may sound good, but that is only a return of 5%. The $500 is deceiving and the capital was not working efficiently!
Thanks & Happy Investing! — The Investment Blogger © 2014