A young adult typically has three major concerns: acquisition of assets and/or money, investment and financial liberty. All three of these are aspects of life that touch on finance; and they are interconnected.
So, what is investment?
Investment is the act of laying out money or capital in an enterprise or an asset with the expectation of making a profit.
Prior to making an investment, there are five crucial factors that you must consider. These are:
1. Your Level Of Risk Assertiveness
Are you risk savvy? Any transaction that involves risk typically has two possible outcomes : a positive outcome or a negative outcome. You need to analyse yourself and see how ready you are to take on the risk that comes with investment.
2. Risk Against Reward
They say that every action has a reaction. Before you make the jump, you need to ask yourself, “What do I stand to gain from this investment? Is it worth the risk that I’m about to take?
3. Your Reason For Investing
You must have a reason as to why you need to invest. Some investors choose to invest in companies they have an interest in. You could be buying a piece of land because you want to hold that particular asset over a period of time in the hope of appreciation over time. Or you want to develop it into an income generating asset. Whatever your reason, it needs to be very clear to you.
4. Time Frame
How long will you need to keep that asset or investment for it to yield maximum returns? What are the terms and conditions for when you choose to dispose of it before it reaches maturity? Do you have that kind of time? Are you patient?
5. Capital Required
Consider the amount of capital you will need to commit to your investment. A lot of people fail to consider this particular bit, but it is also the most crucial. The amount of money you choose to invest is like bad debt. The likelihood of it coming back to you is very unclear. And when investment is made with little knowledge, a lot of mistakes are bound to happen. Consider the amount of risk against the monetary amount that you are willing to part with.
“Risk comes from not knowing what you are doing” -Warren Buffett