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Dentists Who Invest

What Factors Do We Need To Consider When Investing?

22_11_17 What factors do we need to consider when investing_

Fundamentally we can actually distil the forces that govern our success in investing down to 3 things:⁣⁣
⁣⁣
   1. Rate of appreciation.⁣⁣

   2. Inflation.⁣⁣

   3. Volatility.⁣⁣
⁣⁣
So, what do these mean?⁣⁣
⁣ ⁣
   1. Rate of appreciation: This is pure and simple a function of time and increase in value. The more our assets appreciate and the shorter a timeframe over which this occurs is the greater the rate of appreciation. The higher the better, however we must counterbalance this via choosing assets with a proven history of achieving returns. The more data the better in yields a more secure track record.⁣⁣

  2. Inflation: This is the floodwater that is constantly rising and attempting to drown out our portfolio value. The faster this rises the more of a chance that we may find ourselves underwater. The whole idea is to choose assets that will outpace inflation or else we never actually make any profits.⁣⁣

   3. Volatility: Volatility has a few different academic definitions however it is in essence the amount the assets valuation varies around its mean over a given unit of time. The more volatile the asset the more we have to consider timing when extracting returns from the asset.⁣⁣

The essence of investing is threefold…⁣⁣⁣

The idea is to obtain the greatest rate of appreciation over the shortest amount of time minimizing volatility and outpacing inflation by the greatest rate possible.⁣⁣⁣

There are a few more factors to consider of course. However, understanding that there are only three main forces at play is a significant first step.⁣⁣

⁣⁣
*Not Financial Advice⁣⁣⁣

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Disclaimer: The content on this blog is meant for informational purposes only and does not constitute financial advice. Readers should seek guidance from a professional financial advisor before making any investment decisions.

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