What Is a Good Investment? ￼
You have heard, countless times, how you should invest. But investing is not that straightforward. There are a lot of things included—not to mention the risks.
When it comes to the type of investment to choose, you have tons of options. Everyone you talk to recommends something different, and that can be overwhelming.
Know this: what is a good investment for another person, will not necessarily be a good investment for you.
First, establish your goals, evaluate your assets and then come up with a budget. Find investments in your budget and assess their potential for growth.
Define Your Goals
What kind of investments do you want to get involved in? You can choose from commodities, currency, stocks, mutual funds, bonds, real estate and much more. Any of them can make you money but you have to figure out which one.
You also have to decide why you are investing. Is it for children’s college, a house, generational wealth or retirement?
Assess Your Inventory and Budget
Once you have an idea of what you want to invest in and why, it is time to know whether you can do it. You need money for the investment. Make sure you have a steady source of income to cater for your expenses, build a buffer and then save enough for the investment you chose.
Many experts recommend not using over 10% of your income to invest. So you can start with less than that.
Find Growth Investments
You can never predict, with 100% certainty, whether or not your investment will succeed. It is a risk you have to take as an investor. But you can use certain indicators to see if the investment has potential.
For people who don’t know much about investing, getting an investment manager is always a good idea.
The following factors help you evaluate the potential of a company.
Consistent earnings and revenue growth: check the earnings of the company for the last year and last quarter. Compare it to previous periods.
Competitive advantage: what advantage does the company have over competitors? Will it stand in a downturn?
Manageable debt: almost all companies borrow. But a huge debt may not be a good thing.
Does It Offer Income?
If you want to have a steady stream of passive income, this is an important point to consider. One investment that can provide this is real estate. If you have tenants in your properties, you are guaranteed a monthly income.
Shares can also provide income as dividends.
Some investments are good but they are overvalued (overpriced). Avoid overpaying for investments. You will make a bigger profit in the future if you pay a reasonable price today.
Total Cost of Ownership
To own investments like rental properties and shares, you have to incur costs such as management fees, maintenance costs, etc. Take these into account so they don’t eat at your profits.
Can You Diversify Your Portfolio with It?
Your investment should allow you to mix up different sectors and industries. This way, you will be protected if one industry takes a dive.