While it might be easier to pick up profitable investments during strong economy, when the economy goes south, you’ll need more careful and thoughtful research to find investment winners.
Acquiring the most facts will help you decide if a potential investment is worth pursuing.
Check these facts before you move forward:
1. What is your risk tolerance level?
The higher the risk, the higher the potential earnings. How far into the long term are you planning to invest? Are you planning to get your money back within a year, or 25 years? What do you plan to do with the money in the long run?
2. How does the company generate it’s profit?
Understanding this simple fact will enable you make better decision about the outlook and viability of the company.
- It’s challenging to invest in a business you know very little about. This can be the first step to getting that knowledge.
3. How healthy is the business?
Have the revenue been growing every year for, at least, the past couple of years? What is the debt-to-equity ratio? Price-to-earnings ratio? Conduct the critical research to verify the financial stability and profitability of the business.
- Beware of getting sucked into hype that may be orchestrated to drive up the value of the company.
4. What does the future look like?
Obviously forecasting the future is not always easy, but it is crucial in making an investment decision. Will consumers continue to need the company’s products and services in the future? Is the company in a position to thrive for, at least, the next couple of years?
- All businesses will have to at some point change, but development also presents possibilities for errors to occur. The ability to be profitable while preserving the status quo is attractive.
5. Who is the management of the organization?
Few private investors have the ability to meet in person with the management team of a corporation. However, there are ways to investigate the CEO and their team. It’s easy to find the names of the people in charge. A quick online search will provide many details you need to start with.
- How long have they been with the organization? How long did they spend at their previous jobs? What was their success history? What happened to the corresponding stock prices during their tenures?
6. Who is the company’s primary competition?
Any profitable market niche will have competition. How does your prospective investment compare with the competition? Which is best positioned for the future? Which organization has the most effective management team? Which company has shown the most success in the past couple of years?
7. Does this investment add to a good diversification of my portfolio?
Experts encourage diversification of holdings in a portfolio to cushion against unexpected big losses. Take into consideration the level of your diversification and evaluate if this particular investment will add to the diversity of your portfolio.
8. Could this money be better spent?
Investing in stocks or bonds, or any other forms of investment could be a questionable strategy if you have credit card debts with high interest rates.
Consider how the money could best be used before embarking on investment. Paying off high interest debt may be a better option.
Always remember that every investment is a risk, and there is no guarantee of returns.
Knowing your facts can always help you make smart investment decisions. Many investors fail to do their homework well. They rely on hype and hope for the best.
Treat your investing with all the seriousness it deserves. It’s your hard-earned money; don’t gamble with it. Buying stocks or bonds shouldn’t be like buying a lottery ticket. For your best outcomes, understand the essential facts prior to making a decision on any investment.