Your Ultimate Guide To Start Making Smart Investments

Wouldn’t it be so great if we all have a crystal ball telling us exactly what would happen with any of the investments we are considering? Or at least a sage who tells us exactly where to invest our money to get the specified returns guaranteed. Unfortunately, neither of these things exists.

If you have been burned by investments that didn’t work out, I understand your pain. My money conversations with people tend to draw up their bad experiences with investments; the legitimate ones that went south, or the outright scams! It’s understandable when the trauma from losing money makes many fearful of investments altogether, even when they know growing their money is key to achieving financial security.

If you’re one of such people, know there is hope. Whilst no one can give you a 100% guarantee on any one investment opportunity, you can mitigate losses by making smarter investments. As a financial coach, my job after you have accumulated savings and an emergency fund is to teach you the principles to follow so you don’t just go along with trends but put your money to work in the best ways.

What principles should guide my investments?

Following the right principles is important because what is good for the goose is not always good for the gander. The investments you make should be guided by your;

1) Risk appetite

We generally classify investments into 3 risk categories; low, moderate, and high risk. It is super important to know where yours lies so you know what types of investments you can stomach.

If you are a first-time investor, starting your journey with low-risk investments like bonds and treasury bills is the safer thing to do. Only involve your money in what allows you to sleep at night.

2) Financial goals

Everyone has what they would like to do with their money in the short, medium, and long term. Your goals should influence how you invest your money. If say you want to purchase a car within a year from the returns on your investment, throwing your money into real estate would not be the best option.

3) Age

Whereas a younger adult can afford to be more flexible with investment types and take on more risks that could pay off well over time, a much older adult needs more stability. Therefore, both kinds of people should invest differently. 

4) Responsibilities at hand

Your present (and near future) bills and expenses should be factored into how you go about investing. A person who is married with dependants, for instance, needs to invest differently from one who is single and has fewer responsibilities.

How can I differentiate good investments from scams?

A legitimate investment is one in which there is a proven and transparent way in which an acquired asset (or item) generates a profit. Do note that an investment can fail due to different reasons.  A scam, however, is financial fraud that deprives others of their money and harms their financial health through deceptive, misleading, or other illegal practices for personal gain. 

The nicely packaged scams out there mimic legitimate investments so you must be careful. The two major things scammers tend to prey on in people are greed and desperation. But there is also the timeless power of sweet talk, coercion, and good old FOMO (fear of missing out).

You should raise your suspicion about an “investment” being a scam when;

1) It sounds too good to be true

The concept of quick, easy, and risk-free money leads many astray. If the promised returns on investments are so juicy and above what is regularly obtainable in the market (like with Ponzi schemes), think twice.

2) The process for profit generation is not well-defined

If the exact way the money would be generated from your investment is unclear, that’s a red flag. How is the money being made? What product or service is the basis for creating the value you would get paid on? You must know these convincingly.

3) It is trending and appears to be everywhere so fast!

There is something to be said about ventures that grow so quickly. Scams designed to rip people off quickly and vamoose work in a similar fashion.

4) Absence of approval to operate by licensing bodies

Each country has regulatory bodies that give approval to investment platforms to operate legally and be well-regulated. When a platform cannot provide said approvals to the public, and/or has not covered all its bases in this regard, they are less likely to be run in a proper way. The tendency that people would get scammed is high.

5) The people in management possess questionable character

Who you do business with matters! A bad track record and lack of integrity by the people in management can point to them being scammers. Not that you should strictly base your decision on gossip but, do look at things holistically. A lot of scammers are quite intelligent, have the gift of gab, and have good work experience under their belt to deceive people with. 

How can I make smart investments?

1) Do due diligence

You must at all costs have a basic understanding of what you are investing in. What to expect along the journey and when to expect the returns. It doesn’t matter if it is trending right now or your mother is making money from it. Do your own extensive research and never invest based on blind trust.

2) Diversify

Never put all your eggs in one basket so you can better your odds of a good return. Having a mixed portfolio between asset classes over time is wise. Do maintain some liquidity though. Do not tie up all your money in investments however good they are.

3) Invest in strong currencies 

For you to get the best return on your investments, it is better you invest in stronger currencies like the US dollar.

4) Listen to your gut 

Sometimes, the alarm bells ringing in your head are from the Spirit within, warning you not to make that wrong move. It might not make sense to you in the moment but please never disregard your intuition. 

5) Be patient and consistent with your plan

As Warren Buffett says, “you can’t produce a baby in one month by getting nine women pregnant.” Allow the necessary time to pass to get to your investment goal. Monitor your money and make tweaks where needed but don’t be impatient and give up on your journey prematurely. 

To wrap up

I’ll iterate this one more time because it’s important to – There is no such thing as a risk-free investment! Just like living life is inherently risky, investments come with risks too! But the biggest risk of all is not taking one.

Forgive those who failed you in the past and forgive yourself too. It’s hard but necessary.

Commit to increasing your financial IQ. You have many tools available online and offline to do so, including me.  

Get your feet wet and try things out using the guide above. The world of investing may take you a lifetime to master but it’s worth it. You won’t win every game but by following the right principles at least, your wins should outweigh your losses.

Did you find this piece to be helpful? Do let me know in the comments.