Big financial decisions are difficult to make. It doesn’t matter how much experience you have as an investor, either. We still feel that rush of uncertainty, that feeling of standing on the edge of something big. Deciding to step off the edge on faith is scary. After all, no investment is a sure thing. There’s always risk. What if you make the wrong move?
This common feeling can hold back investors of all kinds but first-time investors in particular.
The road to successful investing, be it in real estate or otherwise, begins with a firm foundation. It doesn’t matter how you invest — there are essential considerations you have to deal with before you take the plunge. Only then can you set yourself up for true financial success.
5 Essential Considerations for Wise Investing
Why am I investing?
First and foremost, we all need to develop a roadmap for our finances. Beyond setting goals and allocating budgets, however, you need to know why you are investing in the first place. Understanding what it is you want to accomplish allows you to choose the right path as an investor.
Think about it: an investor who has to make a big financial commitment within the next few years, such as pay for a child’s tuition, will need a different strategy than someone who is investing for the sake of a future retirement some decades away.
There’s not as much flexibility for short-term investing. Long-term investments allow you to adapt and tweak your budget and your plan along the way. As time goes on, you will gain more experience and a better understanding of risk, reward, and what you really want out of your investments.
In general, investing for long-term goals is easier and more stable. Short-term investments are affected by more risk factors. Timing matters more. And, most of all, every investor must beware of trying to get rich quick — it’s always too good to be true!
How much risk am I willing to tolerate?
Risk is an essential and inherent part of investing. After all, there’s no such thing as a sure thing. With that said, there are certain investments that are safer than others. With greater risk comes the opportunity for more reward, and often more quickly. The average person, however, does not have a high risk tolerance. Fast-paced, high-risk investing can be stressful — not to mention the experience and financial safety net they demand.
It’s wise to look to long-term, lower-risk investments to build the foundation of your investment portfolio. As you gain experience and build up that stable financial foundation, you may be able to venture out into more types of investments. The key, however, is beginning in the right place.
How can I diversify my portfolio?
Although risk increases with reward, there is one way to reduce your risk without impacting potential yield: portfolio diversification. Diversification means that you invest in many different areas or through different strategies in order to hedge against risk. If one investment struggles, you have others to sustain your portfolio.
Be sure to check out: Portfolio Diversification Strategies for Real Estate Investors (And Why They Matter)
In real estate investment, for example, you diversify your portfolio by owning multiple properties across multiple markets. That way, if economic hardship results in a dip in the market or in a property vacancy, you have other investments to sustain you. It’s simply the realization of the old adage “don’t put all of your eggs in one basket.”
For the investor, diversification and portfolio growth are key to long-term financial security and stability.
Do my finances need a check-up?
We all have dreams of financial security. Before you dive into the wild (and often complicated) world of investing, your finances need fine-tuning. You cannot invest effectively if other financial factors are holding you back from growth. High-interest credit cards and outstanding debts, poor saving and spending habits, and a lack of a financial safety net can all hurt your ability to invest.
Sit down and evaluate your finances. Are you in a place where you can comfortably invest, or do you need to get some things in order first? In investment, time is of the essence. The more time you have to build equity, the better! That said, being in an appropriate financial situation to begin with — that is, having good financial habits and eliminating liabilities — enables you to invest more effectively from the very beginning.
How reliable is this investment?
There are a lot of different things to invest in. Stocks and bonds. Gold. Art. Bitcoin. Real estate. We know, however, that while these different investments vary in cost and quality, the most important factor in building a portfolio is the reliability of the investment.
Avoid flash-in-the-pan investments: whether it’s the next big stock, a popular asset, or a new type of investment altogether. These “hot” investments don’t typically last, and if they’re “hot” when you invest, you already missed the ideal window to get in on the investment.
Investors, above all, need reliability. Real estate is one such investment. It is a time-tested industry with a predictable cycle, a consistent demand, and enough variation to satisfy investors of all kinds. Real estate has plenty of advantages over other investments — from leveraging money to the concrete nature of owning physical property.
Investing in real estate is reliable — especially if you take the turnkey path. Turnkey real estate investing connects you with expert managers, advisors, and teams that ensure that you invest in the right markets and with the best services provided.
Of course, turnkey investment companies vary in quality as much as the investments themselves. That’s why you have to trust in reputation.
With our reputation for excellence, REI Nation is the premier choice for passive real estate investors! Start your passive investment portfolio today.
