How Do You Decide if an Investment is Right for You?

by Wes Bridel on February 3, 2010

in Stewardship

It’s easy to decide not to invest in an investment opportunity if it doesn’t sound good right off that bat.  But what if it does sound good?  Most investments proposed to you will likely sound compelling or the person telling you about it wouldn’t be doing so.  So how do you decide if you should move forward with this hot stock tip or that “can’t miss” real estate venture?

Obviously you want to pray and seek the Lord’s guidance in any decision. Sometimes He’ll make the decision clear and easy.  But often, He leaves it up to you to work through the decision.  At that point, it’s important to have certain due diligence criteria to analyze each investment opportunity.

Of course, this might seem difficult when comparing ventures across different asset classes.  You should use different criteria when comparing a stock, real estate, private venture, or precious metal decision.  So how do you compare them when each has its own manner of due diligence which is called for?

We’re going to spend a few posts giving you several ways to do exactly that.  We’re going to ask the big picture questions that often go unasked.  These questions are so important that if you can’t answer them with knowledgeable, precise answers,  then you don’t even need to go further with your due diligence.

You really only have two choices:

  1. Learn more about the investment that you are considering so that you can answer the questions intelligently and feel good about the answers meeting your needs.
  2. Walk away from the investment opportunity and don’t look back.  It’s not for you!

So we’re going to be looking at questions like:

  1. What is/are the underlying economic principles at play?
  2. Who is accountable if the investment goes into default?
  3. What is the value proposition of the business opportunity?
  4. Is the investment a one time opportunity or does it offer ongoing systems and possibilities for wealth creation?
  5. What reason, other than rate of return, would you invest in this investment?
  6. Do you understand the investment adequately to make your own decision?
  7. Is the investment insured?
  8. Do you know the people involved in generating the investment returns?

We’ll look at these questions in greater detail along with others so that you are more fully equipped to make the best investment decisions.

This is Part 1 in the series Investment Due Diligence. To continue with this series, click on Pt 2.

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