When an investment opportunity presents itself, it can be difficult to know what to do. However, as every investment has risk, it is important for an investor to carefully consider an investment before committing to it. According to Extreme Investor, “By spending some time reviewing his or her personal situation, as well as the potential investment opportunity, an investor can make the best decision possible.”
Choose an Investment Amount
Before making any investment, an investor needs to determine how much that he or she can afford to invest. A person needs enough money to pay bills and save for an emergency fund. Sinking every available penny into an investment may seem like a good idea, but a person may be financially ruined if the investment doesn’t work. To determine a proper amount, an investor should write out a budget that covers every one of his or her expenses and funds an emergency savings account. Only the money leftover after the essentials should be used for investment purposes.
Stay Calm
One of the most important steps to making an intelligent investment decision is to stay calm and not become emotionally involved in an investment. Too many people become overly excited at the prospect of making money and blindly buy into an investment and hold the investment even after it has shown to be a loser. By staying calm and looking at the investment rationally, an investor will be better able to determine the value of an investment opportunity.
Do Research
Though the person pitching the investment may be a family member, a lifelong friend or a trusted financial advisor, investors still need to do their own research into any potential investment opportunity. An investor will want to look into the background of the investment, and those involved in the deal, to uncover any potential problems. By doing independent research, the investor will gain information on the investment which will allow him or her to confidently make a more informed decision as to whether or not the investment is a good idea.
Review Investments
It is not a good idea to check on an investment on a daily basis, but a wise investor will continuously review investments over time to make certain that the investment is still a suitable one for the investor’s needs. For example, an investment that looked good at one time, may no longer hold much promise of returns. If an investment no longer looks good, it might well be time to sell it and look for a new opportunity. Reviewing investments is particularly important as an investor ages as investors should move money into safer investments as retirement age nears.
