It always feels that “next big thing” is around the corner, isn’t it?
While there’s certainly nothing wrong with being optimistic in terms of investment opportunities, the fact remains that it pays to stay rooted in reality. Whether you’re playing the stock market or looking to put some of your personal capital into a local company, it’s important to tread lightly before jumping into the unknown or putting yourself in financial peril.
However, that doesn’t mean that you should avoid opportunities altogether. After all, if you understand the concept of risk and enjoy the thrill that comes with a new investment, there’s no need to give that up entirely.
Instead, consider the following must-do’s when a new opportunity comes along. These considerations will ensure that you make decisions with a level head and get the biggest bang for your buck when you do decide to splash some cash on an investment.
Crunch the Numbers
Obviously anything you’re looking to throw money at should net some sort of positive ROI, right? Although you certainly can’t predict the future, you can look at the financial viability of any given investment and assess its risk accordingly. From relying on the best free stock screener on the web to asking for concrete financial records before investing in a business, always crunch the numbers before spending a dime.
Trust the Track Record
In the case of investing in a new start-up or business, pay close attention to the track record of whoever is behind the operation. Sure, not everyone starting a business is going to have a seven-figure history, but that doesn’t mean they shouldn’t be required to prove their promise to you, right?
For example, it makes sense to put your money behind a restauranteur who runs several successful franchises versus a newcomer that thinks he can compete with the likes of McDonald’s. These same rules can be applied to stocks, too: the history of a company can be telling when it comes time to put money on the table.
And Trust Your Gut
Now, this tip may seem contradictory since your investments should be based on data. That said, sometimes you might just have a bad feeling about someone or feel that it’s the wrong time for an investment.
Don’t ignore your instincts altogether: you may simply need to do a bit more homework or have a few conversations before making any risky financial decisions. Either way, such feelings are totally normal.
Understand What You Can Afford to Lose
Treating investments like some sort of tycoon rarely works out well. Rather than needlessly dip into your savings account because you have dollar signs in your eyes, only invest discretionary income that you could potentially afford to lose. In case an investment doesn’t pan out, you basically won’t have to worry about potential strife with your family or being unable to make your mortgage payment.
It’s easy to get “wowed” by investment opportunities, but that doesn’t mean each and every one is going to be a winner. Taking a reasonable and realistic approach to such opportunities gives you the best of both worlds as you take calculated risks and keep more money in your pocket.