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All investors want the most bang for their buck. After all, that’s the whole reason we get into investing!
But what are good investments? How to recognize the qualities of good investment opportunities?
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The 4 Qualities Of A Great Investment
There are a gazillion things to invest in, but not all of them are worthy opportunities.
For those newbie investors out there, here’s a list of 4 characteristics of a good investment opportunity and how to recognize them.
1. Great Investments Solve Problems
One of the most important qualities of a good investment opportunity is problem-solving.
Just think about Grubhub, Postmates, or Uber Eats. Thousands of people love staying in their beds and binge-watching Netflix.
No one wants to leave the cozy, warm comfort of their blankets to go out into the frigid tundra of the outside world for food—that’s where these companies shine.
And they don’t just help the customers—these companies help restaurants reach a wider population with their services.
When evaluating an investment opportunity of time or money, ask yourself if the product or service solves a problem.
If the investment doesn’t solve a problem then it’s probably not worth the time, effort, or money. Look for something else.
2. Great Investments Have A Long-Term Future
Great investments are long-term plays. They’re not “get rich quick and easy” like many multi-level marketing schemes.
Here’s an example: Netflix’s stock IPOed at $15. Those who recognized the enormous potential of the internet and its future invested accordingly.
And they were right to do so—the stock is currently trading around $215.
Do you know who didn’t see the potential of Netflix and the internet? Blockbuster.
They thought it was a tiny, niche business with no future. Well, we all know who was right. M1 Finance is a great way to get started!
Again, if you’re looking at an investment ask yourself what the project will look like in 5 years, 10 years, 20 years.
If the project or organization has the potential to scale and still help people, it’s worth diving deeper.
3. The Best Investments Are Simple To Understand
This one is a little more subjective.
Suppose there’s an exciting new artificial intelligence company that you believe is going to make unbelievable gains because you’ve read through their research and it all makes sense.
Logically, you may consider it a worthy investment.
On the other hand, Dave who’s a Michelin Star Chef doesn’t know anything about that field so it’s a terrible investment for him.
Dave should NOT invest only based on your research. Similarly, you shouldn’t invest in Cutco knives because Dave loves them.
Simplicity is king. If you do not understand how the company, app, or project adds value then don’t pursue it.
The purpose of an investment should be able to be summarized within 3-5 sentences. If it can be and you still don’t understand, move on! There are plenty of investments in the sea.
4. Great Investments Aren’t Determined By The Price
One of the dumbest investments I’ve ever made was in penny stocks. I just kept looking at the potential return and fell in love with a pipe dream. Although, investing in penny stocks isn’t always bad.
What I was trying to say is that just because something is cheap (or expensive) does not mean it’s a good investment. Price doesn’t dictate value.
Namely, just because a piece of real estate is cheap doesn’t mean it’s going to rise in value.
Contrastingly, maybe a house just rose up to $100,000 in price, you don’t think it’ll continue to shoot up, so you wait for a drop. You were wrong and it continued to skyrocket.
Price doesn’t equal value.
Price is just what the seller believes the market will pay for it. Low prices aren’t good or bad, same with high prices. We just use price as a heuristic; we associate low prices with mediocre quality and high prices with spectacular quality.
Be aware of this and don’t fall victim to it! Consider all the other factors before throwing your money at the investment.
Qualities Of Good Investments For Beginners – Final Thoughts
To grow your wealth and make fantastic investments make sure you look at the whole picture. This means that you need to learn to spot the right qualities of a good investment opportunity and ask the right questions:
- Does this investment solve a problem/provide value?
- Where will this investment be in a few years?
- Do I understand how it can serve people?
Definitely start here and then dive into the financial aspect of things. If the fundamentals look good and the financials look good, you might just have a magnificent investment on your hands!