UNDERSTAND INVESTING THROUGH ANALOGIES

Posted by

Author: Mohamed Hamza Ghaouri

Investing is a new concept for many people, discussing it is even taboo for some of them because not everyone is comfortable allocating their own fortune to a third party. Saving “or even hoarding” are more comfortable techniques for preserving money.

This culture has an opposite result as money loses its value over time. Saving a sum of money makes it lose its purchasing power due to the constant growth of inflation. In other words, saving does not mean preserving. You can preserve the amount but not the value. To preserve the value of your money “or even increase it”, it is important to allocate it to a profit-generating activity. This is called investing.

In this blog, we’ll cover the basics of investing through simple analogies that can help you understand some key investing terms.

  • Snowball effect

Compound interest is a concept that can be a bit difficult to understand. If you don’t want to be confused by what that means, it would help to think of compound interest as a snowball rolling down a ski area – it builds and builds as it rolls. This is usually interest calculated on the original principal amount, including all interest accrued from previous periods of a deposit or loan.

Concretely, here is how it works. Imagine you have USD100 with an annual compound interest of 10%. Your interest at the end of year 1 will be USD10 but the aggregate value is USD110. The following year the interest will be USD11, and you have USD121 in your bank account. We can continue:

          End of year 3: USD121 + USD12 = USD133; USD12 annual interest earned

          End of year 4: USD133 + USD13 = USD146; USD13 annual interest earned

          End of year 5: USD146 + USD15 = USD161; USD15 annual interest earned

As you can see, with compound interest, the total amount quickly grows bigger just like a snowball rolling down a hill.

  • Growing a plant

From snow to garden, when it comes to the concept of averaging dollar costs, it can be helpful to think of it as growing a plant.

The investment strategy, the average cost in dollars, is to make regular investments over time, say 100 USD per month, regardless of market conditions. This strategy can be smart because short term market movements, which can be volatile, are less important with this strategy since it is based on a regular investment plan.

Just like the regular care you need to grow a plant, a consistent average dollar cost can be an effective way to ensure that your investment reaches its full potential.

  • Collecting seashells

Imagine that you are at the beach and there are seashells of different colors. All types of seashells have the same value. But what if everyone starts collecting white seashells and no one considers other colors? In this case, the value of white seashells is likely to increase, although nothing has intrinsically changed about the seashells themselves – it all depends on how they are viewed.

Investment opportunities are the same. Price fluctuation is often about anticipation and perception of the market, rather than changes in the underlying companies themselves.

  • Diversify your investments (Don’t put all your eggs in one basket)

When you physically put all the eggs that you have in one basket, then you run the risk of knocking the basket down, losing everything. Alternatively, you should put some eggs in one basket and some in another. In other words, diversify your investment. Don’t invest in one asset. Imagine you put all your hard-earned money in one company stocks, and then the next day that stock price collapses …

Moving forward, one project which stands out currently in the investing sector is the Finterra Global Plantations project which is taking advantage of this great global demand for timber and meeting it with the sustainable farming of the Paulownia tree species, the world fastest growing.

The investment opportunity is in the form of Islamic Redeemable preferential shares and is very well regulated including gaining shariah compliance certificate for its structuring. The opportunity is short, only 40 months, and provides partners (investors) between 8-=15% returns per annum paid on a quarterly basis making them highly attractive as passive income.

By investing in such safe yet impactful opportunities, individuals can take their personal responsibility and make a positive impact to the environment while profiting as well. In the end, it’s a win-win situation. Those keen to learn more about this sustainable investment project, can log onto http://www.finterraventures.com.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s