They do not have a clear reason for why they invest.
When asked about their reason for investing, many people say that they do not want their money to just sit in the bank and earn a meager interest.
But this is wrong! You should know what you want your money to do for you, not what you dont want it to do.
Why is this important? If you do not know what your goal is, you will just invest in any investment deals that come by and you will end up making decisions you regret.
Generally, there are two types of investment goals:
- Passive Income
- Capital Appreciation
Do you want Passive Income or Capital Appreciation?
Passive Income is income received on a regular basis, with little or no effort needed to maintain it. Examples of Passive Income Investments are REITS, Dividend stocks, Positive Cashflow properties. Investors normally go for Passive Income at the start of their investment journey to supplement or replace their working income. Passive Income is a mean to Financial Freedom as it can cover your expenses.
Capital Appreciation is when your investment has risen in value based on a rise in market prices. Examples of Capital Appreciation Investments are when you buy a stock or property hoping that it will rise in value and you can sell it. Investors normally go for Capital Appreciation when they have achieved Financial Freedom.
Personally, I am going for Passive Income now as it is my goal to attain Financial Freedom by the age of 30. I want to be able to stop working and yet still maintain my lifestyle while not being tied down by any negatively-geared investments.