Meet Bob and Fred. Bob and Fred both have $40,000. Both want to buy a new car, and use anything left over for investing. Bob spends a month researching new cars - he picks out the exact features and colors and styling he wants. He has that budget of $40,000, but he’s determined to get a great deal. He calls dealers all over his town and pits one against another. He haggles, he researches. Finally he finds the perfect deal. He knocks it out of the park - he buys a perfect car for a lot less than list price - $22,000 for a $25,000 car. Since he’s already spent so much time hunting for cars he just tells his broker to drop it in a “good mutual fund” for him.
Fred, on the other hand, goes out one afternoon and buys a normal, non-luxury sedan without spending any significant time researching, other than to make sure the car meets some minimum standards. He doesn’t haggle much. He knows what basic features he needs, but he doesn’t feel like spending day after day driving all over his city trying to knock another $100 off the price. Why? Fred has other things to do. Fred’s spending his free time studying investment possibilities. He spends $24,000 on a $25,000 list price car. He invests the other $16,000 in carefully researched investments that he identified while Bob was haggling over wheel covers.
Who “made” money? Bob certainly feels he has a nice little chunk of change, “saving” $3000. Fred, on the other hand, didn’t save much on his car, but spent time planning his investments. He identified some great places for his money instead of just dropping his hard-earned savings into a mutual fund his broker’s company is promoting this month. (Editors Note: I wonder if either Fred or Bod saved money with a Prosper auto loan?)
One of the biggest concerns you may have about Prosper (I had it myself) is “how can I possibly spend enough time researching loans and making sensible investments?” Would you ask that question about investing in a stock or mutual fund? Probably not - there is an assumption that stocks and mutual funds are “safe.” You may not feel a need to research GE’s debt or financial statements before investing in their stocks. I am sure many Enron investors were unconcerned by the fact that they didn’t understand what Enron actually did. But any investment requires serious study and examination.
If you don’t feel you have enough time in your life to study investments - be it real estate investments, making a P2P loan or a stock market purchase - let me ask you a simple question: have you seen an episode of a sitcom this month? There’s 30 minutes. If it’s a rerun, there’s 60 minutes of your life that could have been spent making yourself richer. I know people will say that they need to relax. I turn on an episode of The Simpsons from time to time myself. But if you do that, make sure that it’s not time taken away from studying and research in your financial future.
Another reason people find they don’t have enough time to research their investments is a lack of focus. If you try to become an expert in the entire Fortune 500 and real estate investing and the best mutual funds and 15 different alternative investments, you won’t ever have enough time to master them all. You’ll be a dabbler. You can’t focus on just one area, of course; diversification is one of the cornerstones of the personal finance temple. But pick specific industries or types of investments on which you can focus your attention. I work in the financial services industry, and I have always enjoyed following industry news, so it makes it easy for me to follow the news about that market. I don’t do much real estate investing, but I do follow my local market and the markets in cities where I have some knowledge simply because I visit frequently. I used to spend time trying to research 100 different means of gaining alternative income but then I realized it was better to focus on a few I’m interested in - like P2P lending and creating content (writing, developing websites). I found no reason to keep studying the best ways to sell on eBay because I have no passion for doing it.
So the next time you think you don’t have time to study your investments, make time. Whether it’s the market, real estate, peer-to-peer lending or even your own education, good investing requires time - and if you get as much enjoyment out of investing as you do from watching a favorite rerun of Seinfeld, you’ll always have time.
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Steve S. is the author of Brip Blap, a blog about personal finance, health, career management, productivity and self-improvement. He lives and works as a contract governance and audit consultant in the New York City area, and has lived in Germany and Russia. He is an active lender at Prosper.
