5 Ways To Vet A Potential Investment

Most people know the story of the tortoise and the hare. 

As the story goes, tired of the Hare's boastful behavior, the Tortoise challenges him to a race. The hare soon leaves the tortoise behind and, confident of winning, takes a nap midway through the race. However, when the Hare awakes, he finds that his competitor, crawling slowly but steadily, has reached the finish line before him.

What does this have to do with investing?

The Hare, thinking that a swift departure is all that is needed, became complacent. The Tortoise, who slowly yet consistently advances, wins the day.

In today’s popular media, advertisers use a lot of pressure to get people to invest and invest quickly:

“Time is running out!!!”

“Start growing your savings today!!!”

“Make up for all the years you didn’t invest.”

“Social Security is running out!!!”

...and many other such calls to action. In most cases this is harmless – meaning the investor gets a little or no return. In other cases, a person could lose everything they invested.

 How is a person to know if an investment opportunity is really sound?

5 Ways To Make Sure 

You Have Considered All Aspects Of A 

Potential Investment

1. Never Make A Quick Decision.

You may have worked months or years to save those funds. Don’t make a sudden decision to place them. Although you may convince yourself you are thinking logically, and that you understand everything that was just explained to you, you may not be. Just because you don’t have any immediate questions, that doesn’t mean you won’t have some later that day.

No matter what, wait at least a day or longer to digest and think about the information. If you are being told that it is a limited time offer, or that “many other investors are waiting” recognize this as high pressure sales, or maybe even potential fraud.

2. Educate Yourself

Get data. In addition to learning more about the opportunity, find out the track record of the person offering it to you and the company they work for. Find out exactly how this product is going to help you reach financial independence. Don’t be shy or embarrassed. Ask questions — and expect complete answers.

3. Weigh It, Measure It And Make Sure Nothing Is Lacking

Create a list of outcomes. The good, the bad and the uncertain. Don’t just focus on the rosy return you are being offered. Make sure to write down at least a couple of ways this investment can go wrong (money locked in for a certain term, risky placement, etc.) and how much money you could lose (is the offering insured/backed/reputable?). If you think it's a sure thing and that nothing can go wrong, then that's a sure sign you need to dig deeper.

4. Talk About It

Discuss the opportunity with someone else. To do this, you have to actually understand something first so that you can explain it to someone else. second, you are getting feedback from someone who doesn't have an emotional vested interest from this decision.

5. Step Into Their Shoes

Don’t be swayed by grandiose promises of huge returns. In addition to asking yourself how this investment benefits you, also consider how the person or company selling it will benefit. Their motivation may not be in your best interest.

The Tortoise won the day by advancing slowly and steadily. Thinking more slowly and deliberately will help you with all your important decisions, not just financial ones. Doing so may not protect you from making mistakes in the future, but you'll make fewer and less costly ones.

These steps are good places to start a more conscious and directed route to achieving your financial freedom. Read, reflect and take what will work for you.

Bottom line is that there is no blanket strategy. Each person must evaluate their own circumstances, needs and desires. Get the help you need to achieve financial freedom. 


Above all, believe in yourself and believe that you will achieve your goal!

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Sources:

Lynda at Sonoran Sun | Private Equity Investments