What is investment was on the lips of many people some years back during the dotcom era before the investment community was shaken to its root during the economic crisis. But, the question has dramatically changed to what is a good investment now that the global economic crisis and its adverse effects still stir on the faces of many people.
I have explained what an investment is in a previous article that can be accessed following the link above. In this article, I will be pointing out characteristics / features of a good investment / investment opportunities.
A lot of people have made grave mistakes in the past and will still make even greater investing mistakes if the right knowledge of what a good investment is are not made readily available and this informs the motivation behind writing this simple straight to the point article on what is a good investment.
FEATURES OF GOOD INVESTMENT
For any form of cash outlay to be validly viewed as an investment, it must have all the features of good investment that I have listed below.
Financially sound: financial analysis is part of the due diligence that every investor must invest his or her time into before dolling out his fund for investment. Asking simple questions like; ‘does it make economic sense?, ‘is the business model realistic?’ will greatly open your eyes to the financial potential of the investment that you are about getting into.
Cash flow analysis/ projection is one aspect that you will really need to be convinced of before you invest your money into any perceived investment opportunity. It is economically counter intuitive to invest in a company or project that does not make any cash from its operations – only relying on other forms of cash flows i.e financing cashflows.
If you lack the necessary financial analysis skills needed to carryout analysis that will ensure that what ever project you are getting involved with is financially sound, please do feel free to enlist the service of a good investment accountant.
Ability to secure our initial capital: there is no point investing in projects that will not ensure the safety of your initial investment or capital. It is unforgivable for one to put his or her hard earned money into a struggling business without any sign of light at the end of the tunnel. Nothing wrong with investing in a business that has just completed a turnaround scheme and is now on the right path to becoming profitable once again.
Inflation and other variables that affect your investment need to be fully incorporated into the business operation of any business that you want to venture into. Investing in a country with hyperinflationary trend should be approached with utmost caution.
You really need to particularly watch out for all forms of investment scams that are everywhere now. Investment scam is one threat that has come to stay amongst the investment community- or how can you explain pandemic nature of Ponzi scheme?
A Ponzi scheme is an investment scam that collects money from new investors to settle the claims of old investors without doing any business with the gathered funds.
Presence of an exit strategy: you must ask questions that will help you see the end from the beginning. You will really regret ever going into investment if an exit strategy is not in place. There is no point having billions of paper profits in paper that cannot be easily converted into cash. Ease of exiting is a major factor to consider here. The stock market for example is a very liquid investment vehicle that almost guarantees smooth exit when needed.
Lack of fraudulent and illegal activities: be sure not to invest your money into businesses that have been tagged as being illegal or fraudulent. You will easily lose all the money you make from illegal business defending yourself in law court.
I always tell my clients to ensure that they look out for these characteristics of investment before staking their hard to find money. Actively looking for the above features of good investment will not only ensure that you are financially savvy but, will equally give you peace of mind which is what money cannot buy.
I encourage you to invest your time today into carrying out these simple analysis so as to enable you identify good investment opportunities and quickly attain the financial independence height that you seek