Let’s clear definitions first. When I say investing in securities, I mean investing in financial instruments either directly (e.g. time deposit, commercial papers, government securities, stocks, corporate bonds) or indirectly (e.g. investment management accounts of Trust Departments and pooled funds).
And with investing in general, you have to be invested in going concerns. By going concern, I mean investments that have a great chance of standing the test of time and ideally outliving you as the investor.
I have always said that the best investment in the world is to invest in yourself. A better-equipped you will be able to offer more value-added to society at large. Ultimately, it is on this value-added that you will earn income. This is the most lucrative form of investment.
However, under the unbreakable rule of investing, high return also means high risk. Earning from just your value-added to the world will not afford you a diversified income stream. Moreover, you will never know when a dreaded disease or death, which cut short the income from your value-added, will come knocking on your door. You simply cannot outlive yourself.
That is why after protecting your downside through life insurance, you should invest in earning assets that have the potential to outlive you; the going concern investment.
Investing in your own business is great. However, if that business is structured in such a way that it’s very existence also depends on your existence as the business owner, then that business is not a true going concern.
For a business to be a true going concern, it must have an adequately decentralized operating and policy-making structure. After all, nobody is indispensable. Such a structure will continually give birth to product/service innovation, high employee engagement, effective marketing, and efficient finances or in other words, a going concern.
Building a business that is a true going concern takes a lot of time and effort. And if you do not have the size of funds, expertise and time to do so and/or you rely largely on your value-added to the world for income, the alternative way of investing in a going concern is through investing in financial securities.
Before financial securities are even offered to the investing public, regulators help screen if the issuers of such securities are going concerns (i.e. they must have the capacity and longevity to pay off their debt securities). These issuers must also have the potential to give equity securities owners the decent returns that the latter deserve. Since nothing stays the same, security analysts do their share in updating the financial performance and condition of issuers of securities to see if they are still going concerns.
And if you cannot do direct investing in going concerns, there are experts out there who can do it for you for a modest fee: enter Trust Departments of banks and pooled funds.
But whether investing is done directly or indirectly, the overall idea is to invest in a business or securities that can augment your earning capacity and even replace it especially during retirement. Such investments will need to be going concerns.
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