Many people make some form of investment, either by themselves or through their financial consultant or banker. As a matter of fact, as one grows older and expand their social circle, chances are they are exposed to more money-making opportunities that promises you more money. Obviously, all of them will require some form of investment from you in some ways (eg, money, time, effort etc.). Now begs the question, “What is a good investment?”.
To answer that question, we need to look into the risk-reward ratio.
Risk is simple, what is the probability that you will lose your capital. Or in opportunities outside of the money market, such as YouTube, MLM, affiliate marketing and so on, what is the probability that failing in that avenue will be fatal to you?
Many people feels that investors/entrepreneur are taking loads of risk, thereby, it is a high risk high reward activity.
That is incorrect. Investors/entrepreneur takes calculated risk. They manage their exposure to risk.
After ensuring that the investment is safe and non-fatal, the rewards has to justifies your involvement. Therefore, an investment can only be a worthwhile investment if it completes this 3 criteria.
Here are 3 criteria that an investment need to fulfill in order to be considered a worthwhile investment.
The first cost you have to pay is commission, for engaging a broker or agent to conduct your transaction.
There are tax on investments as well, such as property tax, stamp duty, dividend tax, capital tax and so on.
If you invest in a property, you have to take care of various maintenance fees and conservancy charges as well.
Your overall investment return has to exceed all of them.
After covering your cost, the next thing that your investment has to beat is inflation. The point of investment is to grow your money.
If your investment returns cannot beat inflation, it is not an efficient investment.
Your money is still not growing, it is shrinking.
Different countries have different inflation rates, 3% a year, 1% a year and so on.
If you hold an investment for multiple years, it has to beat inflation for all of those years.
- Spending Power
After beating cost and inflation, the final thing that your investment has to beat is your desired spending power.
After investing your monies in an investment for a few years, you want your investment to create reasonable spending power for you.
The investment must create enough returns to give you some form of spending power.
Here are the 3 criteria that an investment has to beat. There are many investment tools in the world. After ensuring that it is a genuine investment, the investment must give you genuine value.
Not doing so can mean that investment is not a worthwhile investment such as in this situation, where the lady is spending too much money for too little results. It is true that her exposure to risk is not very high (I didn’t say that it is low), the chance that the insurer cheats her of her money is very little, but she is over-stretching herself for too little a result.
Generally, for investment, do not enter into an investment if you don’t understand it. And of course, the best investment decision that you can make, is to invest in yourself.
In part of us being featured on The Smart Local giving 5 non-basic investment tips, this article furthers increases the number of non-basic investment tips that we hope that will help you.
Constantly on the mantel of continuous learning and providing more value, we have organised a workshop to show you the things that you should not do in the stock market. These will go beyond investment tips!!! Which means it will be chargeable, but hey, it is a special session right?
Yes, it is, we will waive off all charges if you sign up here. Simply insert the promo code “iamready” before checking out for a free session where we will go through with you specific reasons why people do not make money in the stock market. It is these things that you should not be doing that causes you to be unprofitable in the stock market.