No. 1, Educate Yourself
Ah, investing. I like to think of investing money as putting your money to work for you so you don’t have to work as hard. An added benefit is that investment income is generally taxed at a lower rate than earned income. This means that the money you earn from a normal job is taxed higher than money earned from an investment. So if you have some extra cash lying around and you are not sure where to start, let me share what I’ve learned. Real estate investing is my personal investing vehicle of choice. However, this article is not written to persuade you to invest in real estate, as there are numerous investing options out there. Here’s what I’ve learned the past few years of investing in the stock market, real estate, business start-ups and other investments.
#1 Educate Yourself. This is vitally important. Educate yourself not only on investing in general, but also specifically about the asset class you’re putting your hard-earned money into. Learn everything you can about the market in which you are investing. Understand the pros and cons, the advantages and disadvantages. For example, when you invest in real estate, it’s easy to retain control of the asset, but your funds are less liquid than they would be in the stock market. However, when your money is in the stock market, you do not have control of the performance of the asset. Learn the tax strategies and legal details involved with your investment of choice. This is your hard-earned money; take all the proper precautions!
#2 Get Advice From Wiser, More Seasoned Investors. Mentors are valuable. Talk to others who have invested in this specific arena. If you’re interested in real estate, talk to other real estate investors. If you prefer the stock market, talk to longtime stock market investors. Leveraging the wisdom of others is a powerful investing tool. As the saying goes, “Those who do not learn history are doomed to repeat it.” Learn what key factors impact the type of investment you choose and what mistakes NOT to make as you pursue your financial goals. Your network is your net worth. Make some new relationships, and you’ll shorten your learning curve drastically.
#3 Maintain Control or a Controlling Interest. This is crucial. If you’re a minority or passive investor and do not have controlling interest, you have to get to know the other partners very well. A business partnership is like a marriage. Sometimes it can be difficult to unravel once it’s put in place. Be certain your partners are not dishonest; be certain they are not idiots; and most of all, be certain they’re not dishonest idiots! Do your homework, ask for references and learn as much as possible about the people you are trusting with your money.
#4 Understand the investment. This one is simple: If you do not understand the investment, do not invest. Make sure you comprehend the return schedule, profit sharing, contingency plan, exit strategy, etc. If you’re a partner in an investment that you do not understand, it will be more difficult for you to evaluate the performance of the investment. It can also be more difficult to keep the other players accountable if they can siphon funds or profits without you noticing. If you’re a beginning investor, keep it simple at first. Always learn and expand your knowledge so you can continually invest in more sophisticated projects.
#5 Be rational, logical and unemotional. Emotions are not your friend in the investing world. Never fall in love with an investment. Know when to say “no” and also when to pull the plug. Stay calm and go by real data, not your feelings. I will admit that there’s a lot to be said for trusting your gut instinct, but when managing your investment, never act (or react) out of anger, spite, etc. Beware of trends, hype and speculation. If timed right, these trends can be profitable. They only last a brief moment, as our attention spans are shortening and we quickly become bored and ready for the next cool new gadget.
So there you have it. At the end of the day, it’s your money and your choice what to invest in. Remember, you have your own expertise, your own goals and your own risk threshold. Do what you’re comfortable with. Wishing you much profit and enjoyment with your investments!
Charles Foster, branch manager of Supreme Lending, Moore, can be reached at 618.3801 or 696.0072 or Charles.Foster@supremelending.com.