To invest simply means that you allocate money or value with the expectation of future returns or benefits. Investment is the bedrock of the desired future and whether or not you’re conscious of it, daily we make decisions that will determine the outcome of our future. There is always a level of risk attached to every investment, as we would be focusing on investment in business terms. Before we discuss those decisions that will most likely render you bankrupt, let’s be sure we are on the same page about what investment is. Basically, anything acquired which can be exchanged for a return can be called AN INVESTMENT. Therefore, there are 3 categories of investment and every material investment falls into either one of these categories.
OWNERSHIP INVESTMENT
Ownership investment includes your Acquired Stock, an Entrepreneurial Business, Real Estate, Collectables eg Antique items.
LENDING INVESTMENT
Lending investment includes your Bank Savings(because technically, you’re loaning the bank your money to do business with) although the return may be really small, it is also an investment. Bonds are also investment, although are considered very risky.
CASH EQUIVALENTS
Cash equivalents include money markets that deal with Short-term loans(ranging through a period of one year or less).
Now we have a clear understanding of what an investment is, let’s move on to 7 most common mistakes people make while choosing what to invest. These points are lookouts when choosing an investment.
- WHEN IT IS TOO GOOD TO BE TRUE
It has been proven several times, all that glitters really isn’t gold. Some people jump into an investment the moment they hear sweet tales about the returns. Whenever you’re told about an investment opportunity with ridiculous returns and no logical explanation of how the return is generated, it’s a clear warning sign to back out
- WHEN YOU DON’T UNDERSTAND HOW IT WORKS
Some people think a business plan is legitimate because it is very complex in its workings. If after a business is pitched to you, and you have asked relevant questions but you still can’t figure it out, you shouldn’t be in a haste to indulge in the investment. Your understanding of what you’re indulging in must be as clear as white.
- WHEN IT WORKED FOR YOU BEFORE
There is no guarantee that it would rain today because it rained yesterday, the same applies to investment. There are always fluctuations in what determines the return of an investment. Therefore, if you’re going into an investment, you must have more than the reason that it worked last year, you must consider other factors also.
- WHEN IT DOESN’T MATCH YOUR RISK TOLERANCE
Without a doubt, the Forex market is booming daily, but the true question is, can you handle the risk of fluctuations in the market? Will you be able to swallow the loss that accompanies it?. Your risk tolerance should determine the kind of investments you make.
- WHEN YOU HAVE DIFFERENT INVESTMENT OBJECTIVES
Everyone who makes investments definitely looks out for returns but on different scales and with different objectives. You must ask yourself necessary questions and establish the objective of your investment to know whether or not you should go ahead with the investment. For example, you must ask yourself whether you are out for the income or you want to grow your capital.
- WHEN YOU CAN’T SELL OUT
Whenever an investment opportunity shows you the door in but doesn’t show you the door out, it’s a red flag sign. You must always choose an investment plan which allows you to cash out at will without loss.
- WHEN SOMEONE RICH IS DOING IT
Investment most times require more than just the available means to acquire it. Every business person has their time zones and their business environment, and just because Jeff Bezos is doing it doesn’t mean it’s for you. You must find your investment niche and excel in it.
Finally, we must learn to invest in the right reasons always. According to Warren Buffet, ‘Someone is sitting in the shade today because someone planted a tree a long time ago’. Always evaluate your risk tolerance while choosing an investment, so it doesn’t end up being detrimental to your business objectives.
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