Knowing the risks and opportunities in every investment venture you undertake is the best way to ensure you make the correct decisions with your investment capital.
You will likely reap a handsome return by making the correct and informed decision when investing. Other than ensuring that your money is put to good use, intelligent decision-making is worthwhile and immensely satisfying.
To make the right decisions, ensure you conduct sufficient market research and understand the finances underpinning the investment plan. Once you have dedicated adequate time to it, you will start to feel great about investing, especially if everything goes according to plan.
Before you proceed, take as much time as possible to evaluate the risks and opportunities ahead of you to ensure you make the right and informed decision with your hard-earned money.
Admittedly, there is a plethora of investment information, ranging from trading applications on mobile phones, advertisements on YouTube, and even friends who have always wanted to invest and earn a good return. Now more than ever, a lot of pressure forces investors to unknowingly rush into decision-making, which is a major catalyst for failure.
Therefore, we suggest you spare as much time as required to gather all necessary information before committing to any investment venture. In addition, if your goal is to invest long-term, look for ways of profiting from short-term investments without compromising on the long-term goals.
To help you make better investment decisions, we have highlighted the major questions you must consider before investing your money.
#1. Can I Handle The Amount Of Risk In This Investment? Is It Money I Am Willing To Lose?
There is an element of risk in any investment that you might consider getting into; however, the level of risk is significantly higher in some investments than others. Always remember that if an investment potential is promising higher returns, like these ESCT share price, so is the level of risk. High risk equals high return.
Other investments, like putting your money in a savings account (to grow at a specific rate), have minimal risk – close to nil. However, always remember that if inflation is considerably higher, it may erode the interest earned on your savings accounts. Therefore, if inflation rises substantially, it may lower the actual value of the cash savings, meaning your money can purchase fewer products than before (loss of purchasing power).
On the other hand, if you plan to get into an investment that promises relatively high returns, it is always helpful to ask yourself if you are ready to lose some or all of your money if things go south. When investing in property consider a first charge bridging loan.
Bottom line, take extra caution before directing your money to investments with high returns projections, primarily when dealing with sophisticated products like cryptoassets or speculative mini-bonds. To determine if the returns are above average, consider the returns on low-risk investments like cash savings accounts.
For example, the rate of return on a cash ISA now is about 1% annually. Other investments offering a return higher than this will carry with them inherent risks.
Please read our article on diversification to learn more about the need to choose a selection of assets to minimize your portfolio’s risk.
#2. Do I Fully Understand The Investment Plan, And How Do I Get My Money Out Before It Is Too Late?
When looking for an investment opportunity with higher returns, it is easy to overlook the essential details, thus exposing the entire investment plan to risks.
You need to understand the entire investment plan by knowing what it is, how it works, its concept, and the ease of getting your money out if the need arises. Among others, these are the paramount factors to evaluate before investing.
We cannot emphasize more how critical it is to understand what you are getting yourself (or your money) into. Some investment opportunities have an easy entry, but when you need your money back, or the plan goes off-track, you will need recourse to recover as much money as possible from the investment.
For instance, the availability of other investors willing to buy an investment like yours in real-time, e.g., on the stock exchange, helps you exit quickly from the investment. Ensure no legal hurdles or requirements limit you from selling off your investment, such as an investment provider’s agreement.
If successful, high-risk investments can be quite rewarding; however, due to the nature of the risk involved, they are better left for investors with prior experience in the finance world.
Consider other less risky investments, such as getting into a pension plan with your employer or putting money in a well-diversified investment fund through shares and shares ISA if:
-You lack the required experience in the financial field
-You are not willing or ready to lose all your investment money
-You lack a complete understanding of the investment being offered to you
If any of the above statements describe you in one way or another, you may need to evaluate if high-risk investments are ideal for you keenly.
#3. What Are The Laws Regulating The Investment Venture?
It is a major requirement in the financial industry that firms dealing in regulated products treat their customers justly. Nonetheless, there are financial activities beyond our regulatory framework’s scope, meaning you will likely lack access to the Financial Ombudsman Service (FOS) or Financial Services Compensation Scheme (FSCS if you engage in unregulated activities and matters do not go according to plan.
#4. How Am I Protected If The Investment Provider or Adviser Stops Operating Permanently?
The truth is that when investing in high-risk opportunities, there is no definite answer to such a question.
Before investing in a particular venture, it is vital to know that you will not have any financial or legal protection merely because the investment did not perform as expected.
Nonetheless, ensure you confirm all the available protections you can claim if the investment provider or other regulated financial professional ceases to operate indefinitely.
The UK law mandates us to authorize and regulate firms engaging in financial services. Therefore, look at the Financial Services Register to confirm the firms we have certified and the specific services they can engage in.
Generally, if you hire the services of a financial firm that has not been authorized to transact in such business, you will lock yourself out on any protection that you can receive from FOS or FSCS.
#5. Can I Seek Professional Financial Advice?
It would be best always to get the professional advice you need to determine the risks and opportunities in a prospective investment offer. Based on your financial position, the professional adviser will assist you in creating a plan to achieve your investment objectives and advise you on the correct mix of assets to hold in your portfolio and manage your overall exposure to risk.
Also, ensure you work with a regulated adviser when seeking expert financial advice. You can use these tips or ask these questions to establish whether the professional is licensed.
High-risk, high-return investment opportunities can be enriching. However, they are ideally suited for investors who know (and are willing to accept) the risks in the deal.
Remember that these investment products are likely to benefit experienced investors the most. To help others, we have provided extra information in our article discussing the risks and potential of high-return investments