I am often asked by clients and even in casual conversations with people at sporting events, airports or in social gatherings; “How does one find the ideal investment?” I am going to share in this post what I normally share with those who ask.
My first words back to the one asking the question is a question: “Are you an ideal investor?” As you can imagine I get all kinds of weird looks and responses. But that is a question an investor has to consider. Robert Kiyosaki has become a champion for raising the bar in the world for financial education. As he discusses in his book Unfair Advantage, an investment is only as good as the investor. What this really means is you as an individual must raise your financial IQ before you will be able to recognize and purchase ideal investments.
The truth is: success of failure, wealth or poverty, depends solely on how smart the investor is. So instead of telling you the qualities of an ideal investment, I am going to give you a list of questions to help you determine for yourself. The best part is I am doing a FREE webinar that continues the discussion in depth called “7 Key’s to Financial Freedom”. So come join me and let me answer your questions face to face.
Are You The Ideal Investor?
Do you understand risk? Most of you will probably think “of course I do.” But to be clear here is the definition according to Merriam-Webster of the word risk: possibility of loss. That would then imply that the higher the risk the higher the possibility of loss. How many times can you invest in something if you are guaranteed not to lose your money? Now tell me how many times you can invest in something if ever so often you will incur a loss. Sometimes a total loss? The numerical answers to these two questions is not as important as the understanding that once you have a loss you are done. You have to learn how to reduce risk, to zero where possible, before you can determine what is an ideal investment.
Once you know how to solve the risk problem you can move on to interest or the increase of your investment. Most people will define interest with a saying something like; “There are two kinds of people, those that pay interest and those you get paid interest.” Which is not a bad definition. I just want to make it clear you cannot talk much about getting paid interest in you have the possibility of losing your initial investment.
You might be thinking what is the difference between interest and compound interest. Why am I distinguishing between the two? The reason is you can never have compound interest if you do not understand and solved the problem of risk. Like I asked before, how many times or how much would you invest in something if you are guaranteed not to lose your money? Compound interest is a function of the safety of the investment. Did I repeat myself?
Yes, there was a tax “cut” passed in Congress recently. Are you sure? It may or may not be a tax cut for you. The effect taxes have on an investment is critical for you to understand. We will talk more about this one on my webinar. But for now, let me give you an example. Let’s say you are offered two different investments: a) an investment guaranteed not to lose money and will grow by 10% this year. b) an investment guaranteed not to lose money and will grow by 7% this year. That is an easy one right? The one that earns 10%. Then you read in the fine print of the investment offering that the one which will grow 10% this year will be subject to 35% taxes. An ideal investor knows what to consider and who to consult with to determine an ideal investment.
Every investment has a partner. Be certain you know who your partner is and their track record. Many people go blindly into an investment or mutual fund because it is offered by some big named investing company. Yet in reality, the person who has their hands on your money is a newly minted fund manager with zero experience. Change your feeling about the investment?
Here is a proposal for you. I want to be your partner in an investment and here are my terms to allow you to be my partner: a) You front all the money. b) You take all the risk. c) You manage the investment on a day to day or month to month basis. d) Regardless of how the investment is doing, I will dictate to you when you must pay me my portion and how big of a portion of the investment I get. If you do not comply with these 4 terms or our agreement you will be penalized and thrown in jail. Are you ready to sign up? Of course not! But, the majority of people DO! I’ll explain what I mean during my FREE webinar!
That is what I usually tell people who asked me “how do you find an ideal investment?” If they are still listening and interested I will then offer to tell them what I consider to be the top 7 attributes of an ideal investment.
Before I go remember to join me during the “7 Keys to Financial Freedom”. Where I will teach you how to become the ideal investor.