4 Pitfalls to avoid when making investment

Investment is a wise choice to make when taking care of your future. There is still no better way to increase your wealth and protect your future then to invest. However, every investment has its own risk and investment decisions should be viewed and made on a calculated risk basis. Let’s look at some investment decision you should be careful to make.

1.       Be careful about illiquid investment- these are security or assets that cannot be easily sold or exchanged for cash without a substantial loss in value. Some time, they cannot be sold quickly because of the lack of ready and willing speculators to purchase the asset. This lack leads to larger discrepancies between the asking price and the bidding price that would have been found in an orderly market with a trading activity. Examples of such investment are real estate, cars, antiques, etc. Illiquid securities carry higher risk then the liquid once because during market turn oil, you usually have more sellers than buyer, so to sell, and you have to lose a lot of money.

2.     Be careful with investment that requires up front commission: Most investment decisions are made on the guidance of a professional who will usually earn the fee as commission on the investment.  Most times, this professional leaves you to deal with the challenges of managing the investment portfolio, so it is safer and wiser to structure the service that their professional services will be on-going so they too can have a stake

3.     Avoid investment you don’t understand: No matter how good an investment looks, if you don’t have a understanding of the investment, avoid it. Even if you are being guided by a professional. If you are interested in a particular line of investment, the first step is to acquire the basic knowledge of it. This information will later be useful when is time to assess the investment.  The tendency that you will not notice a major point that can make or mar the value of the investment in the future is very low.

4.     Never put all your money in the same type of investment. There is a common rule in the investment world and it is to spread your investment portfolio, even if they all don’t have the same expected yield. This is necessary due to the sensitivity of the business environment, as change in forces, Government policy and unforeseen circumstances are changes that affect the value of the investment. This is why it is advisable to spread your investment.

 

In conclusion, the importance of investment advisers can never be over emphasized, in the cause of avoiding an extra expenditure as professional fee, you may end up costing you your life savings.

Idowu Okungbowa is the Managing Consultant of ‘Fredericks International’, a Human Capital Development and Marketing Consulting Firm. He is a public speaker and he has a great interest in youth development and entertainment. Email: idowuokungbowa@yahoo.com.