What is a Good Investment? Here’s 3 Signs to confirm it
Making a good investment is the priority for any investor. Getting ready to invest and looking for the right company to put in your hard-earned money is better when you have a strategy and a little help to guide you towards a great investment.
In general, there are two currents when it comes to business analysis: those who trust the charts, basing their investment decisions on technical analysis, and those who prefer to look at the company’s numbers and rely their conclusions on the fundamental analysis.
While nobody can guarantee success in any investment opportunity, investing in companies that meet some (if not all) of these criteria, can amazingly increase your chance of achieving a good return percentage on your investment. Below, we will show you the points you must examine and look into before making any investment plan.
But first, what is a good investment?
To talk about an investment is to refer to capital and profits. This is equal to putting economic resources into an idea or business project that is expected to produce profits in the short, medium or long term, depending on the way it’s invested.
Therefore, when talking about a good investment, it’s not only about the mere fact of having capital on this or that project, it implies the accomplishment of expectations that, at the end of the day, are the main reason to a smiley face on those who have put their money to work for them and not vice versa.
As you can see, there are two key elements for a good investment:
As long as the investment materializes the determined goals, then we could say it’s good enough. Even if for a completely out of place reason, there is a setback, such as an unexpected rise in the raw material price of national/international relevance like oil, it doesn’t mean that the investment was bad.
Therefore, a good investment is accompanied by standards that define whether or not it meets the investor expectations. This could be the primary signal of its success; summarizing it in the financial investment goals. That’s where the importance of the financial goals is, to establish the standard that defines the investment action.
3 Signs that confirm a good investment
After seeing that the main element that defines a good investment is the financial goals, then it’s time to know the three primary indicators that show if the capital investment has been carried out correctly and if it will meet the investor expectations.
Sign No. 1: Profitability
The first sign that confirms a good investment, and perhaps the easiest to identify, is profitability. Something is profitable when it produces benefits. Therefore, if an investment presents surpluses then there is profitability. What happens is that the profits generated don’t always satisfy the investment or who makes it. Taking into consideration that not all instruments or ways in which it is invested will have the same response level.
In other words, it’s not the same to invest, for example:
- In commodities instead of stocks
- In the currency market instead of assets.
To sum up, each instrument and market has its own characteristics and the person should, as much as possible, adapt to it. However, profitability must meet a previously made expectation, one that is consistent with both instrument and market reality. Therefore, having already defined the financial goals with good results is a sign that a good investment has been made.
Signal No. 2: Time
The second signal is time. Some people may wonder why? Because time in the investment world is literally money; therefore, within the main factors that must be taken into account, with any doubt, time is important because it sets the time-frame to recover the investment.
Time is, beyond profitability, how long it takes to recover capital, considering the uncertainty levels that are handled within the same market. This doesn’t mean that all capital investments need to be short term. First, it’s important to establish financial goals that need to be:
In that way it will be possible to define the expected levels of profitability, then the time-frame will set the entire investment context in order to be made.Therefore, when it’s finally possible to adjust to the appropriate time according to the instrument capacity within the market, then this is a sign that a good investment has been made.
Signal No. 3: Risk
The third signal is crucial because it’s the one with more weight in the entire investment structure. As a result, it’s the one that represents the turning point for the person who puts their money to work. We can say that:
- The risk is the probability that something adverse will happen.
- It quantifies how possible it is that the investment has a setback.
- It’s an indicator of how much the investor should provide in case of a setback.
In this sense, a sign that confirms that a good investment is being made is when the risk falls within the tolerance range of the person. When it has been measured and placements have been made to solve it in case it occurs. That is if they have taken precautionary measures depending on the level of risk being handled.
So if something doesn’t go as planned then, the loss effect has a minimal negative impact, as a plan b. As much as financial goals are defined according to individual reality and expectations then investments will be made according to the individual risk profile in order to see the big picture for those things that can go wrong.
To sum up:
Planning and then making a good investment is the result of analyzing the different variables that have a direct impact on its development. Subsequently, it’s important to highlight that there’s a risk in every investment, those companies we see as good investments such as real estate and commodities can generate significant losses.
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