How to Avoid Losing Your Money in Bad Investments
In my last post I dealt on the need for anyone who wishes to retire into abundant money and wealth, and therefore to be able to afford and enjoy the good things of life, to ensure they saved a part of the money they are making now while still working, and continually invest and reinvest it.
We saw the wonderment of the idea of compounding interest â€“ how your little savings, well invested over and over can build up into tons of money in a couple of years.
However, notice the clause â€œwell investedâ€ above. This is important because just as your little money can turn mega using the leverage of investment, it can also be easily lost in a bad investment.
Therefore, in order to avoid pain, instead of the desired joy of knowing your money is building up and your financial future is been secured, it is important for you to consider certain things before putting your money into any investment.
Here are some ideas to guide you away from losing your hard earned money in a bad investment.
Decide what your financial goals are
To begin with, as you decide to start investing your money and reaping the benefit of compounding interest, you have to set your financial goals. What do you want to achieve or how much money do you want to make, and at what time do you want to accomplish this? How much money can you conveniently put aside for investment? Your answers to these questions will help you to know which kind of investment is best for you to commit your money.
How much risk can you take?
This question vividly reminds me of a friend who is also a well sought after stock investment expert. The first time I wanted to invest in stocks I asked him to tell me the best stocks to invest in at the time. But instead of saying, invest in this because it could make you lots of money in so and so number of months, what I got from him was a rather discouraging question: â€œHow much money do you have to invest, and are you prepared to lose it?â€
Though his answer (or question) was blunt, I was later able to understand why he decided to sound that way.
There are different investment windows and each has a certain level of risk factor to it. Some investments have a huge Return On Investment (ROI) potential. That means you could make a great deal of money from them. However, such investment opportunities usually also have a high risk factor, and that means you could equally lose your money in them.
Therefore, for the fact that money invested can also be lost, I believe my friend was right to have given it to me straight away. In fact, investment advisors should not sugar coat the issue of investment when dealing with their clients.
Intending investors should be aware of the risks involved in the various investment opportunities they may be interested in, and then make up their minds on the investment to put their money based on the level of risk they can comfortably take. So that if the investment goes bad and they lose their money they would still be able to sleep at night.
Get basic knowledge of the investment you are interested in before you put in your money
This is also a very important counsel to heed if you donâ€™t want to get your fingers burnt in making bad investment decisions. Though you donâ€™t have to be an expert on investment, yet you should strive to know what you are putting your money into and why you have to take such decision.
Here are some â€œdonâ€™tâ€ to consider seriously if you donâ€™t want to lose your money in a bad investment decision:
Donâ€™t chase after trending investments: just because everybody seems to be buying a certain stock for example, doesnâ€™t automatically mean you will make money from it.
Donâ€™t rely solely on reports from the financial press.
Donâ€™t take advice blindly from brokers or financial planners.
Donâ€™t make emotional mistake: it is not enough to consider investing in a stock for instance, because you love the company or its products, without considering whether the companyâ€™s financial reports point to achieving good returns for your money.
Bottom line: the bottom line here is that to avoid losing your money and becoming heart broken, you must try to gain basic knowledge and understanding of the investment you are eyeing before getting in.
Reading books by known experts, such as Warren Buffet, Peter Lynche, Robert Prechters, etc., and attending investment seminars, as well as getting an investment coach as a guide, can help you to gain valuable knowledge about any investment before you invest your money in it.
And then you will be able to join the league of money making investors and truly secure your future financially.