This article is a guest post by Rich Leverage, author of Rich Credit Debt Loan. Rich focuses on leveraging debt instead of eliminating it… clearly a strategy that I’m fond of. If you enjoy the article, please consider subscribing to his feed.
Why do some people succeed in the stock market like crazy and other people lose their shirts? It’s always a gamble when you’re dealing with stocks, but it does seem as though there are select people that always make the right decisions when it comes to picking the right investments. How do you know which investments are right for you? Is investing in real estate a good idea? While there is no one answer to this question, there are some general questions you can ask yourself before you put any money into any investment.
1. Will it create a stream of income?
The best investments will create a stream of income that will allow you to be less dependent on your primary income. This is a goal that many people have, but few know how to achieve it. If you are looking for a low risk investment that will keep paying you back, you may want to consider a high yield savings account or even a CD with the bank. Figure out how much extra money you would like to make each month and then try to find an investment that will provide you with that return.
2. How much risk is actually involved?
The top stock rating company may be shouting BUY BUY BUY – but is it really a good idea? Although these companies do know what they are talking about, they can still make mistakes. You owe it to yourself to do your own research and figure out whether it is a buy for YOU. The plus side of this is that you’ll feel much more informed and you may be able to spot an opportunity that may not be as promising as it looks on the surface.
3. How long will it take to start returning money?
If you need money right now, then a bond is probably a bad idea. You’ll need to consider how quickly you want to see a return when it comes to figuring out which investments are best for you. Just keep in mind that some of the fastest performers may also be the riskiest. Always remember to balance out your risk so that you don’t end up regretting your decision.
4. How will this one investment enrich your portfolio?
If you are finding that you have a lot of similar investments, your portfolio probably lacks the diversity it needs to start performing well. The best investors always diversify since it reduces the overall amount of risk that you face.
For example, let’s say that you have ten different stocks and they are all involved in the paper industry. Suddenly, a new virus starts wiping out the trees and paper takes a big economic hit. Your entire portfolio would feel the brunt of this news.
Now, that’s pretty dramatic, but it shows how risky putting all of your eggs in one basket can be. Replay that same scenario, but this time, you only have 5 stocks in paper, and 5 in oil. Your portfolio will be able to handle the hit a lot easier when you are diversified.