Thursday, July 20, 2006

First Rule Of Investing

There are a lot of rules when it comes to investing, but probably the first and most important rule to remember is that the higher the returns received from the investment, they are accompanied by higher risks. This is one of the easiest ways to tell if something smells fishy. If someone promises high investment returns with little to no risk, it goes against this rule which means it is likely not what it seems to be. Always remember, if an investment seems too good to be true, it probably is.

1 comment:

limeade said...

I don't necessarily agree with the blanket statement that higher return investments are those with higher risks. There's a lot you can do to mitigate risk. Start by doing some homework on the investment you're considering. This mostly applies to the stock market which is what most people think of when they think of investments. This is far too narrow though.

Adopt an "own and control" strategy. People say the stock market is so risky because it's out of there control and in the hands of the "market sentiment".

A rental property on the other hand can be owned by you and controlled by you. Don't buy it until you do your homework and make sure the numbers work. While there are still some unforseen risks, they are mostly calculated.

To say that high returns are always risky is a bit too general.

Nice blog though.

-limeade
http://fiscalmusings.blogspot.com