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Over-Investing—Definition, calculations and more

Investing in an asset more than the actual value of the property is regarded as over-investing in finance.  Over-investing is practised more in personal consumable investment compared to in business sphere. Read on this wiki page to know everything about over-investing.

What is Over-Investing?

Over-Investing is referred to as the exercise of devoting in an asset where the value of capital invested is very rich. In an ideal market situation, the value of the capital invested outweighs the actual worth of the asset. Thus, the goal of investing is to help people earn profits and gain wealth over a fixed period. Still, there are people out there who fail to understand the concept of investing and lure themselves into the trap of over-investing. Therefore, investors are more concerned with market fundamentals, like price or earnings ratios and management forecasts to maximise the chances of profit.

Thus, after conducting numerous successful studies, marketers concluded that over-investment occurs mostly in the case of investing in big-tickets. These expensive investments can include personal consumable items like property, automobiles, trailers, etc. Now, you may have your to-do-list that you want to do in your life; but, the most common desire is to live in an expensive house or driving an expensive car around the city. Therefore, you cannot deny the fact that people generally fall for the desire of buying property or automobiles leading them towards over-investment.

In simple words, the point when marketers fail to understand the requirements of the shareholders leads to excessive investment. The capital invested in the asset proves to be significantly high than the original value of the asset in the market. Therefore, the concept of over-investment leads to a misuse of the investment benefitting only the manager from that investment. The threat of over-investment generally occurs when an investor withdraws from the market before maturity or investing the money in a single sector.

Fundamentals of Over-Investing

Over-Investing is nothing but the process of investing way more than the actual value of an asset in the market. There is a fragile line between the concept of investing and over-investing. Investment is merely the process of acquiring assets that you hope will grow in value in a fixed interval of time. On the other hand, over-investment occurs due to the failure of marketers to understand the requirements of the shareholders. To achieve a better understanding of over-investment, you can refer to investing in stocks and bonds and ways to own them.

What would you do after purchasing stock in the market? You won't re-sell it instantly after the purchase; instead, you wait for a particular time for that stock to grow in the market. If you are new into the stock market and clueless about its working, there is a high probability for you to over-invest your money. So, before making any investments, it is imperative for you to realise the behaviour of stock in the market. Now, if you are acquainted with the flow of business in the market, you can earn profits by investing in your stock. But, if you fail to possess the required knowledge, there is a high probability for you to over-invest in the market. Thus, the fundamental of over-investing significantly depends on the capability of marketers to understand the requirements of the shareholders.

Characteristics of Over-Investing

3 Key Characteristics of Over-Investing

• Goal Setting: You need to plan your goals to earn profits from your investment as "a failure in a plan is a plan to fail". After numerous studies, it is observed that a poor goal setting contributes the most to over-investing. Therefore, to spare yourself from the loss of over-investment, it is imperative to plan your goals accordingly.
• Knowledge is the key to success: As it is known since the earlier times, knowledge is the key that can unlock every door of success for you. Similarly, in the subject of finance and accounting, to earn profits you must possess the required knowledge regarding the demands of the shareholders. If you fail to understand the requirements of the shareholders, the chances of over-investing increases drastically.
• Risk Aversion: To survive in the market you need to learn to take calculated risks when the situation demands it. It is because situations in the market are similar to a toss before a cricket match. It can either be heads or tails; you cannot predict what is going to happen next in the market. Therefore, sometimes it becomes imperative to take a calculated risk to earn profits out of your investment.

Over-Investment Example

To achieve a better understanding of the concept of over-investment, you can refer to the example given below:

Suppose you invested more than the actual value of a property and bought a fully-furnished house in your locality. Still, you are not satisfied and want to make certain improvements or add a few things to your house. So, a situation like this where you have already invested more than the actual value of the asset is known as over-investment.

Is Over-Investing Beneficial for the Business?

To ensure profit in a business, it is crucial to remember the difference between investing and over-investing. The concept of strategical investment is most extensively followed by marketers to ensure the sustainability of their business. Moreover, investment needs to be done after conducting thorough research and analysing all the market parameters strictly. Numerous firms are sustaining in the market following the principles of a strategical investment. Therefore, after going through the complete article, it can be positively concluded that over-investing is not beneficial for any business.

How to Know When You’re Over-Investing

5 Ways to Know That You Are Over-Investing

• Exhausted Savings: According to most of the experts in this field, it is imperative for you to possess an accurate knowledge of your savings. It can be in the form of savings account, an emergency fund, a retirement plan, your provident fund, etc. Therefore, you need to make a habit of planning your traditional savings and invest accordingly to earn maximum profits.
• The significance of Diversification: It doesn't matter if you over-invest generally or in any specific area; over-investment can never benefit you in any manner. Diversification is the key to a successful investment allowing you to earn profits through multiple sources where you have invested your money. For example, if your shares in one company drop, you can still make profits through your shares in other companies. Therefore, it is crucial to diversify your investments to ensure your benefits.
• Over-relying on the outcome: You cannot play a useful role in the market if you have an over-relying attitude towards the outcome. You need to remember that investment always carries some risk. So, you should always invest the amount which you can bear in a worst-case scenario.
• A loss in business: A decline in business or a string of failed businesses is most popular among the investors to over-invest in the market. It is in human nature to over-invest in any business after they suffer a massive loss in their business. But, the wise decision here is to save the remainder of your money and utilise it efficiently in the future.
• Lack of knowledge regarding investment: To make profits in business and sustain in the challenging market, it is crucial to learn effective investment techniques. For an investor with a considerable capital but lacking the investment knowledge, results can never be beneficial. Thus, improper knowledge of investment leads to over-investing in multiple or single areas of marketing.

Best Ways to Save Money and Invest Wisely

4 Ways to Save Money and Invest Wisely

• Start investing early: You need to start investing as soon as you begin earning as the wealth you accumulate highly depends on it. Also, an early investment contributes to an exponential growth of your money over time regardless of the amount you invest.
• The significance of savings for emergencies: An emergency can surprise you anytime without any prior call or giving you an opportunity to prepare yourself for it. Thus, it is crucial to keep reserve capital in your account to successfully tackle an emergency and sustain economically.
• Investment to accomplish long term goals: All of us have a desired goal or aim to achieve in our lives creating the need for capital to do so effectively. Therefore, to achieve long term goals with minimum struggle, it is crucial to plan effective investment with proper backup in case of adversities.
• Avoid investment funds with high fees: There are numerous funds available in the market with different fees of investment. Among all the funds available, you need to invest in funds with the lowest percentage of investment fees. Therefore, practising this step sincerely contributes to an increase in your capital savings.

Textbooks on Over-Investing

Book 1

Is China Over-Investing and Does it Matter?

Published by International Monetary Fund in 2012

By Mr Il Houng Lee, Mr Murtaza H. Syed, Mr Liu Xueyan (Authors)

Book 2

Investing in Your Company's Human Capital: Strategies to Avoid Spending Too Little--or Too Much

Published by AMACOM Div American Mgmt Assn in 2005

By Jack J. Phillips (Author)

Book 3

Intelligent Stock Market Investing Handbook

Published by Vision Books in 2013

By NJ Yasaswy (Author)

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Over-Investment

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