Investing in a smart way is not a preserve of the learned. In fact, even the most astute investors make grave financial decisions at some point. This is, in part, due to uncertainties and circumstances beyond our control. However, much of unsound financial investment decisions emanate from our inability to read the signs and take appropriate action. So, just how can you invest smart and increase your income? This question shall be the focus of this post so read on to find out.
1. First things first
…curb your appetite for debt. It is a fact that most investments are bankrolled by loans from financial entities. However, experts discourage this trend, especially if you are a first-time investor. If at all possible, try to save up for your first-time investment. Loans should only serve to supplement what you have already saved. This is because first-time investments are known to go horribly wrong.
And when they do, they will leave you with heavy debts to deal with. That’s a double tragedy no investor wants to suffer. On the same note, always ensure you settle all your debts as soon as you can. Remember that most banks and other institutions offer loans on interest. The longer you hold onto it, the higher the interest rate.
2. Know what to invest in
Smart investment involves investing in a less-risky venture. These are ventures that are likely to result in profits. Some of them include fixed-income instruments, such as treasury bills and corporate bonds. Basically, you loan your money to corporate or state entities that borrow it for a specific time period.
The government or corporate entity then uses your money to finance certain projects. After the agreed time period, they remit your profit to your bank account. Evidently, you are unlikely to make losses here unless they renege on the agreement.
Apart from corporate bonds and treasury bills, there are other less-risky ventures you can pursue. An example is investing in fixed assets, such as heavy machinery, buildings, and land. Land is especially touted as a great option as its value is almost always appreciated.
3. Know when to invest
Time is of great essence, when it comes to investing. Naturally, you would want to invest at a time period, when business is booming. Also, you may want to be the speculator. This means you will invest in a business that may not be doing so well at the present.
The assumption is that most investors would not prioritize the industry for its bearish outlook. But unknown to them, you could reap big time, when the business picks pace. An example is investing in company stocks, when they are cheap and apparently doing poorly. Also, you may consider acquiring land for speculation purposes. In either case, timing is everything.
4. Know where to invest
So, you have the capital and an idea in mind, but aren’t so sure of where to invest. Location is of very great importance. Even a third-grader would agree that luxury condos in a rural setting is an epic investment blunder.
While competition may be low, you would never get any serious occupants. On the converse, condos would do fine along the beach. Evidently, it is important to determine the location in terms of demand and supply. Also, location has a direct bearing on infrastructure and accessibility.
If your clients cannot access your business, it does not matter how low the competition is. You surely will never get any returns on investment.
5. Manage your expectations
I hate to burst your bubble, but many startups fail because of unreasonable expectations. You might have invested in a multi-million dollar venture. However, that does not mean you will begin smiling all the way to the bank soon. Profit takes time to realize. And even when it begins trickling in, it may take even longer to recoup your capital.
Be patient with profit-making. Instead, focus on growing your business. In the worst-case scenario, you could make losses so much as to close shop. Is that the end of the world? Absolutely not. This is where you need an exit plan. An exit plan is like a fallback plane in the event the worst happens.
You should know how to go about the remaining stock in the event you close shop. How to settle any debts? Whether your venture is transferable to a different entity in case you grow out of love with it, etc. Ensure you have these thoughts out before taking up any investment.
6. Always plough back as much as you can
Last but not least, it is important to plough back as much as you can. This basically implies reinvesting some of the profit you realize out of the business. There are two perks to ploughing back.
First, it ensures that you are not risking any more of your savings. Secondly, it is the surest way to grow your business. However, in order to succeed at this, you’ll need patience and perseverance. The thought of recouping your investment may be so tempting, but with a bit of discipline, you will find it easier to plough back.
There go our tips on how to invest smart. We hope you are better informed. The next time you think of taking up any investment, be sure to follow this guide. Feel free to leave your comments in the comments section below.