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To avoid bad investment can be very tricky.
‘Human beings have certain innate tendencies that don’t always lead to the best investment choices,’ says Mark Riepe, senior vice president at the Schwab Center for Financial Research.
What is a good investment? Or How to avoid bad investment?
Both are very tricky questions. At the same time, they are quite simple if you follow a few steps. Why?
You can see, there are always several important events happening at the same time in the global economy and the capital markets.
Earnings reports, inflation readings, central bank decisions, trade deals, geopolitics with weighty implications.
Altogether, these factors hold some influence over the direction of stocks and bonds. It makes sense that investors would want to consider each one closely when making an investment forecast.
Being analytic and detail oriented makes sense and is very positive in my opinion. If you want to avoid bad investment
Where is the catch?
Investors too often overemphasize the negative, more fearful or worrisome factors, while giving less consideration to the pricing power of the positive factors.
But it’s kinda human nature to be stressed and captivated by uncertainties.
The cryptocurrency market, for example, attracts investors into the possibility of making huge sums of money quickly, without any clear mechanism for understanding or measuring the risk of the investment.
And other examples, 2008 financial crisis, the front page of the Wall St. Journal featured an article stating that economic decline, the collapse of the dollar, and moral degradation would lead to civil war in the United States by 2010.
That madness and hysteria surrounding the financial crisis gave many investors no choice than to take these forecasts seriously.
When the world becomes chaotic, any prediction can make sense. But many of those predictions are bad ones.
You can count on knowledge and experience to help you make smart decisions in most areas of life.
Investing doesn’t always work that way.
Even professionals in financial and market fields, often fall prey to the same unhelpful reflexes that are present among investors.
Fortunately, you can put controls in place to help you set aside harmful impulses. In order to avoid a bad investment.
We live in a society where many seek to keep up with the Joneses.
Only a few individuals are resistant to the urge to make a fast dollar.
It is highly recommended to overcome emotional and personality-driven faults.
Honestly, it’s hard to achieve, almost impossible.
But, one of the keys to success is recognizing that a problem exists, and then devising mechanisms to control or limit bad decisions or risk.
Investing is all about risk, but the calculated risk is important.
The first key: avoid bad investment by avoiding confusing investments
You are more likely to make a bad decision when you lack understanding or knowledge.
If you just don’t understand the investment or the opportunity sounds tricky then you have to do two things: Ask more questions about it and consult with someone who has more experience than you in the field or product.
Frankly, when you don’t understand it, don’t invest your money in it.
Do your own independent research on any potential investment. If you someone offers you an ownership stake in a business, don’t feel pressured to make a decision right away. Demand two to three weeks to make a decision after you’ve received all the details that they can provide. Meantime, you will be able to research similar companies and be assured in your answer as to why or why not you select to invest in this business idea.
You should diversify your investments.
Never put all your resources into one investment.
Don’t put all of your eggs in one basket, is an old saying.
This rule is valid for investments. If someone recommends you put all of your money in one specific investment is giving you bad investment advice! You must spread your resources through financial products and probably some real estate.
You have to find a competent investment advisor.
Make sure that you seek professional help from someone who is educated in the field you’re looking to invest in.
Don’t take financial advice from someone who isn’t a financial professional.
The advisor is skilled to analyze a business idea and financial instruments. An advisor can review fund and stock history. And can give you guidance on the possible projection of the investment, based on market indicators. They can properly explain to you how to avoid a bad investment.
Bad investment decisions can devastate all your investment, all your capital.
Don’t be rush or make a quick decision. Investing is a smart and methodical process that cannot be made in a hurry.
You must take your time and evaluate before making any investment decision to avoid a bad investment.
A wise man once told, “Measure twice and cut once.”