5 Reasons Why Should Think Twice When You Make Investments

This frugal feature was provided by a contributor. 

If you are thinking about investing in real estate or starting down the path to invest in other modalities,  it’s going to take some time to research and make an informed decision.  By setting aside enough time for planning before executing your plans, you can ensure you’re not rushing and can make the right decisions.

One bad investment can have serious repercussions on your ability to invest in the future, especially when your funds are limited as you first start out. Of course, all investments come with a certain level of risk- but gathering as much information as possible a great way to understand your exposure to risk.

Here are five reasons why you should think twice before you make investments:

1. Understand the investment first

Most of the successful investors are very careful not to invest in things that they don’t fully understand. You can’t expect to make money from something when you don’t have all the most up-to-date information. The first step should be to seek the advice of a financial professional or a more experienced investor. If you are not getting the information, then think twice before you make any decision.

In recent years, many people have developed an interest in condo investments in the United States and Canada.  One popular example in a hot market and a new real estate venture are pre construction condo investments in Toronto. One of the reasons for this is the fact that condos are not as expensive as detached buildings and traditional homes with larger yards and bigger footprints.  If you’re interested in investing in real estate, do your research!

2. To compare the potential rewards with the risks

Any time there is an opportunity to make money, there is also a risk that goes with it. Understanding this fact helps you separate unlawful schemes from legitimate opportunities. You should always carefully assess the risk you’re willing to take on and have an anticipated plan should an investment not provide a good return.

Additionally, it’s vital to be aware of fraud and especially risky ventures that promise to be too good to be true. Most investment frauds are promoted as high-profit opportunities with very little risk. These are the opportunities to avoid.  Ask around- if it’s providing something “super secret” or far beyond 5-7% annual return, beware.

3. To verify the legal status of the investment

The investment opportunity must be in compliance with all the relevant laws. It must also be registered and licensed by the relevant bodies. Registration makes it easier for potential investors to access key information about the management structure, finances, products and services of the company in question.

4. To maintain flexibility

Adaptability is very crucial to the success of a business. When you think twice about every investment, you avoid tying up very large amounts of money in a single investment. This allows you to adapt very easily when changes occur. For example, if competition drives prices downwards, only investors with extra cash will be able to withstand the price fluctuations.

5. No turning back

Some investments are made to buy and hold, panicking and pulling out can There is no guarantee that you will get your money back if you change your mind along the way, or pull out prematurely. Of course, sometimes cutting your losses is the best thing to do if and when you realize that the investment is no longer in line with your goals and you can’t ride out the slump. You don’t want to continue losing money just because you are too emotionally attached to the original plan, so do your best to figure out to hold or sell. 

As an investor, you will always be faced with important decisions on how to invest your money wisely. Without the right approach, you can easily lose your hard-earned cash with one bad investment, so do your due diligence to calculate risk in a way that suits your needs and long term goals.