TOP DRAWER ARTICLE

The Basic Secret of Investing
by
HL Carpenter

Money Market Accounts. Bonds. Mutual Funds. Stocks. Is your head reeling from so many investment choices?

Take a deep breath and relax. You’re about to learn a deep, dark secret that will simplify the whole idea of money management. Ready?

No matter how loud the hubbub of noise and confusion in the financial world, there are only two ways you can invest your money:

Loan funds to someone and collect interest.

Buy an income producing property and harvest the profit.

Not convinced? Think about the investment choices listed above.

If you put cash in a money market account, you are making a loan to a bank and receiving interest.

Adding bonds to your portfolio? You’re loaning money to the government (Treasuries) or to a business (corporate bonds) in exchange for interest.

When you buy shares in a mutual fund, you purchase an income-producing property in exchange for capital gains and dividends.

Stocks? The same idea.

What other investments can you think of? Second mortgages? Hmm, sounds like you’re loaning money. Cash value life insurance? That’s a loan to an insurance company.

How about owning small business? An income producing property. Real estate? Collectibles? Both income producing properties.

Isn’t simplification a relief? Of course, you still have to investigate investment opportunities before you plunk down your cash. You also have to decide whether you want to be a lender or an owner, or a little of both. But knowing the basics can make you more effective in achieving your goals.

And that’s the best secret of all.

Originally published August 2003.

Last update: January 8, 2011