PICKING THE MOST SUITABLE INVESTMENT

Investment opportunities present themselves in all shapes and sizes. It is possible to place money in as diverse a range of commercial ventures as transport, education, hospitality, health, retailing, textiles, banking and real estate.

Investment opportunities present themselves in all shapes and sizes. It is possible to place money in as diverse a range of commercial ventures as transport, education, hospitality, health, retailing, textiles, banking and real estate. There are a few rules a person wishing to invest can observe to find the best home for their money. Here, we are talking basic approaches that can be applied across all types of asset.

Deciding on Rate of Return

The tendency in most entrepreneurs is to hope for as high a profit rate as possible. Even so, the minimum acceptable return often differs from one person, group or organisation to another. As an investor, then, you have to see, for starters, if a business gives the least profit satisfaction you would be content with.

Understanding   the Type of Business

An appreciation of the kind of scheme one is considering having an interest in is important. You do not necessarily have to be expert, but merely familiar with the general behaviour of the particular business type. What is required is such basic knowledge as would make possible forecasting of sales.

Reading the Business Environment

This is a highly complementary issue to the preceding one (understanding type of business), as business can only be fully comprehended when viewed relative to what surrounds it, or could surround it at some point in time.

The business environment includes competition and government policy. Not to be ignored, however, is what lies inside the business, such as the capacity of the employees. It all helps an investor see what fortunes or misfortunes are likely to lie ahead.

Estimating Payback Period

This is closely related to rate of return (the higher the rate the more quickly costs are covered).

There must be calculation of what length of time it will take to recover the capital outlay. Less time generally means less exposure to hazard. Allowing a long payback period means so many things could potentially happen to change the course of business from good to bad.

Considering risk or uncertainty

Risk is danger that is known and may be estimated, while uncertainty is a threat that is not predictable, and may even be difficult to measure. Examining risk or uncertainty greatly helps in getting a more complete perspective of the profitability of an investment.

Where too much risk or uncertainty exists, it is naturally wiser not to stake any assets.  

Assessing Participation Level Needed

Some investors would like to take part in giving direction to the business while others would rather be largely passive.  

Measuring Free Time Allowed

Even when one would like to be part of active management, they may wish to dedicate some time to leisure and other interests. If an investment does not permit you time for other life pursuits, it might take fullness out of your life. It therefore cannot be said to be a good enough venture to get into.

Gauging Ease of Divesting   

Once an undertaking loses attraction (profitability, essentially), it should be relatively easy to retrieve the resources put in it - or what remains of them - so that they can be used in another type of endeavour.

Conclusion

Experienced business people and scholars are aware that part of the game of investing well is diversification of risk. It is the old adage of not putting all one’s eggs in one basket. It is better to have an asset portfolio spread over, at the least, two ventures. These also should advisably belong to different sectors (in simpler terms, you could invest in a mine and in a tourist resort). It stabilises income flow and thus shields against sudden and total fall from riches to rags.