An investment can be loosely defined to be some sort of financial commitment you make with the aim of achieving specific financial goals in the future. A good investment is indeed one which rewards you greatly for sticking to that commitment, but should the need arise, you should be able to have access to the value accumulated as part of your contributions so far.

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On the other hand, a not-so-good investment is one which does nothing but take money out of your pocket each month with the value or perceived value you get out of what you’re paying for not really adding up and not really contributing to a better financial situation.

Why are things like life insurance called investments?

Looking at something like life insurance, which is readily sold to prospects as an investment, you can pass on the benefits and associated costs of the policy you took out by proceeding to effectively sell life insurance policy terms to someone else. That someone else is usually your insurer with whom you took out the policy, if they do indeed have a buy-back, cancellation or early cash-in structure in place. Otherwise you’ll effectively be selling your life insurance policy to companies or organisations that are specifically set up to buy debt, derivatives and investment contracts such as life insurance. If you take the time to learn a little bit more about life settlements, you’ll also be aware of the fact that the underlying insurance policy can usually be cashed-in before your inevitable death (hopefully sometime in the very faraway future), and that’s essentially where the investment aspect of life insurance comes in.

Seemingly bad investments you just can’t avoid

If you take into account an “investment” such as a motor vehicle, financially savvy advisors and investment experts repeatedly tout a car as a bad investment. This is definitely true because it is an investment that depreciates in value as soon as you complete your payment for it and drive it off the display bay — celebratory bottle of champagne in-tow. In some instances however, although you are fully aware of the fact that something like a car isn’t a particularly great investment, you have to look at the bigger picture. While the car’s direct value may depreciate quickly and effectively render it a bad investment (one which you can’t re-sell for a net gain), in this case a car can turn out to be a good investment, especially if it is a need rather than a luxury. A car allows you to drive to wherever you can, perhaps to late business meetings in awkward locations or you might even spot an opportunity as an Uber driver, or something along those lines. This is when a perceived bad investment adds to the total value of your investments as a whole, even though that particular investment in isolation doesn’t hold all that much investment value individually. Consequently, your investment portfolio should yield value that arises as a result of the sum of its many parts, so look at the bigger picture and you’ll be able to better gauge the true value of an investment.

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