Investments: How to Tell the Good from the Bad

Investments are just part of correctly managing and growing your money, but it’s important to distinguish the good investments from the bad investments. Now, the first thing to know is that any good investment can become a bad investment at the drop of a hat—and vice versa—but there are a few ways to protect yourself from such bad investments! First, ask yourself if you’ll borrowing to afford the investment; if the answer is yes then that’s probably an investment better left to high-risk traders. In addition, beware of trends and buying an investment simply because everyone else is—not everything that is popular is successful, and not everything that is successful is popular! Lastly don’t have a fear of missing out (or FOMO), if an investment is one that you feel you have to buy right this instant, then it probably isn’t a sound investment!

Don’t Borrow to Invest

You’ve heard the old adage of “high risk, high reward” and that certainly applies to investing. Perhaps one of the most high-risk strategies that you can adopt is borrowing money in order to afford an investment. Unless you’re a high-risk trader, then you’ll want to avoid this strategy, as you’ll end up paying the interest on your margin loan on top of whatever you owe back! Also, it may be obvious, but there’s no guarantee that the investment will even be successful! As such, you may find yourself in a situation where you’ve borrowed money in order to make money, and instead ended up losing money that isn’t even yours! There are plenty of safer investment options available that will still provide the potential for money to be made, so don’t fall into this trap!

Don’t Invest because it’s Popular

There are countless cases of investments that have been made simply because lots of people decided to invest. It’s easy to remember that not all things that are popular are successful and that not all things that are successful are popular! This isn’t to say that certain trends in investing are bad or that certain popular investments can’t be a good investment! However, it’s important to do your research and understand not only why the investment could or could not be successful, but also why it’s so popular! If the reasons for its popularity aren’t grounded in sound financial practices and reasoning, then chances are you’ll want to avoid that investment! In addition, there are plenty of sound investments that weren’t initially popular. In terms of stocks, Apple started from humble beginnings, and Amazon started in a garage! Don’t think that every unknown investment will make it big either, but understand that not every popular investment is the best investment!

Don’t Have FOMO

FOMO, or fear of missing out, is something that applies to all aspects of life—and that includes investing. If an investment is one that is advertised as one you “don’t want to miss out on” or one “you have to get now before it’s gone” then it’s not a sound investment! Sound investments are ones that will hold their value and, through your own understanding and research, are one’s that will be smart to invest on next week, next month, and next year. Constantly throwing your money at things simply because you’re concerned that it’s your only chance to get that thing is a great way to end up with less money!

In short, be smart with your investments by doing your research and scouting trends! Experts and advisors can certainly help you make educated decisions, but ultimately it’s up to you to pick the right investment. Understanding what makes an investment both good and bad is the first step in seeing growth in your money as a result of a sound investment. Contact Carolina Money Minders for more advice on when and how to invest your money!