Investing can and should be an enjoyable experience. As with anything in life, once you get good at something you can enjoy it more! However, when people start out investing, they often like to chase ‘shiny objects’ and ‘sexy’ investments.
Often people find that trying to make a ‘quick buck’ carries a lot more risk, and some investments should be avoided altogether. Whilst there are a range of specific investments that have been proven to work over the long term, knowing the strategies to avoid getting poor investment results is just as important.
Avoid investing in something that doesn’t make sense to you or that you don’t understand.
For example, if you don’t understand business and how to read financial reports, then make sure you learn about them before investing in a business. If you don’t know anything about ostrich farming, again, learn the positives and negatives and ask lots of questions so you can make an informed decision.
Never invest in something when you don’t know what the risks are.
Every investment carries a level of risk, so make sure you are well aware of the risks as well as the potential rewards that the investment may provide. Typically, the higher the risk, the higher the potential return, however this is not always the case. Make sure you know how your capital is protected and consider the worst-case scenario.
Do not invest if you don’t know who is behind the investment and what their motivations are.
With every investment opportunity, there are people behind those investments with good intentions but occasionally some investments are run by ‘sharks and cowboys’. Ask questions around who is involved in the investment opportunity and why. Dig a little deeper and don’t take everything at face value.
Before you invest, make sure you have a clear exit strategy.
Whenever you are going to make an investment decision, you need to know how and when you will exit the investment, how liquid it is, who your end buyer is, and the costs involved in disposing of the asset.
Always, and I mean always invest according to your plan.
If you don’t have a plan, work with a mentor or someone that has already done what you are trying to achieve. Whilst your goals will change from time to time, each investment decision you make should relate back to your short-, medium- and long-term goals.
Remember that as the investor, you are the one that ultimately decides whether to invest in any particular investment or strategy. Armed with the above tips, you can help to stack the odds in your favour and start investing like a professional and build long-term, sustainable wealth.