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3 Factors to Consider Before Making Investment Decisions

by Rohan Mathew
3 Factors to Consider Before Making Investment Decisions

Are you planning to start investing?

That’s a smart move. The benefits of investing are well-documented: it helps you build wealth, stay ahead of inflation, prepare for retirement, and meet other financial goals.

Investing, like most things in life, has downsides as well. Depending on your investment decisions, it’s possible to run into massive losses and most investments take time to yield good results.

You want to be a successful investor. We all do. Often, what makes the biggest difference is one’s approach to investing. If you make smart decisions about investing, you stand a good chance of finding success.

In this article, we’re telling you what you should consider when making investment decisions. Read on!

1. Risk

In investing, one this is certain: risk.

Virtually every investment you make has an element of risk. You can’t escape it.

If you’re investing in the stock market, there’s always the risk that prices will move against you. In real estate, property values don’t always go up.

Yet, to make money as an investor you want the prices of your assets to go up. As such, it’s critical to evaluate the risk involved in a certain investment before going in. This is relatively easy.

There are investments that are universally known to be high risk (Learn more here about high-risk investments). And there are investments that are known to be low-risk.

Depending on your risk appetite, you can choose an investment that works for you.

2. Reward

On the opposite side of risk is reward. This is what you stand to gain after making a successful investment.

Different investment assets have different rewards. In fact, any investment has a risk-to-reward ratio.

You shouldn’t make an investment just because there’s a reward. The level of reward has to meet your investment goals.

Typically, high-risk investments have high rewards – if everything goes according to plan. Low-risk investments have low returns. An example of a low-risk investment is residential real estate. An example of a high-risk investment is cryptocurrency.

Always calculate the risk to reward ratio of an investment before going in.

3. Capital

Remember the phrase, “spend money to make money?”

It applies in investing. You won’t become a successful investor if you don’t have the capital to start investing. It costs money to buy stocks, bonds, real estate, precious metals, and whatever other asset you’re eyeing.

But it’s not just capital. The amount of capital matters. It will determine the type and size of investments you can make.

For instance, real estate is capital-intensive. You need about $200,000, on average, to buy or build a rental unit.

On the other hand, you don’t need as much money to start investing in stocks. In fact, you can start with as little as $100, but the more you have, the better.

Make the Right Investment Decisions

Your investment decisions can make or break your career as an investor. Make smart decisions and you’ll enjoy the benefits of investing. Make wrong decisions and you’ll rue the day you thought of becoming an investor.

Hopefully, this article will guide you in the direction of good decisions. We’ve got more investment advice, so keep reading our blog!

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