Investment Criteria - my take
It's wise to have some sort of investment criteria before you start considering parting with your savings to make it work for you.
Without criteria, you'll be subject to the opinions and recommendations of others who are very willing to put your money at risk. There is risk in this activity, but a good set of criteria will help minimize your risk.
There's no such thing as a sure thing, but I don't think you can "stack the deck" too much in your favor, Having criteria for making an investment is a good place to start.
I'm not a financial counselor and I won't pretend to be offering anything except examples of general guidance that I think you need to develop for yourself in more specific terms before you hand your money to someone else in the hopes of getting a decent return.
Here is a hit list of criteria that you might consider when you put together your own specific guidance for your investment interests. In no particular order, I suggest you favor the following characteristics:
- Make certain the idea is yours. If something is worthwhile putting money into, no one should have to convince you it's a good idea.
- Look at the long term scenario. Initially, anything can look good. It's what happens over the long haul that's important. Markets rise and fall. Businesses startup and close. Look at trends and make an assessment of the potential life cycle of your investment.
- Focus on traditionally good performers. Land is a good example. Will Rogers said "Buy land. They ain't making any more of the stuff." It's so very true. And, developers are always looking for place to develop. In America we build out, not up, so land is a good thing to have.
- If you're putting your money in technology, make certain it's on the rise, not something that is already very popular. The nature of technology is that it changes. It comes and goes. Ask any former employee of Polaroid and they'll tell you that technology has a limited life.
- If you're going to have your money sunk into a business, make certain you have an active interest in it. Don't simply be the person who writes checks periodically. Active interest means you run it or you manage part of it, or you work there. In any case, you'll be able to keep you eye on your money and how people are treating it.
- Protect your principal. Pitiful interest on your savings is one thing to complain about, but loosing your principal is quite another story. In one case your money is moving forward at a snail's pace. In the other case you're loosing the fruits of your labor. There is something to be said for protected investment vehicles like certificates of deposit, especially if you don't know much about having your money make more money.
- Timing is another factor to look at. Markets are affected by world events, a flood of investors, and how the government manipulates the marketplace. If you're looking at certificates of deposit, you'll want to time it such that interest rates are high, and then go for a longer term certificate that is going to have the best rate for perhaps 5 years.
- Something solid with backup is important. "Products" offered by large insurance companies and investment vehicles backed by the government can offer some sense of security just based on the sheer momentum of the organizations.
To be a good investor takes time to learn the marketplace, understand timing of transactions, know the nature of the business, and to find something that matches your tolerance for risk and your objectives in terms of growth.
Even if your money doesn't earn you a dime, the idea that you've kept it from dissolving by being conservative with it is a great idea. I favor putting my money where my heart and mind are - in my own enterprise. It's something that I know. It's a market that I know. And, I'll have an active hand in managing the thing to success.
In my view, it sure beats handing someone else your money and crossing your fingers. And, that about what you're doing with financial interest in someone else's company.
Done with Investment, take me back to Are You Frugal?