Are you familiar with litmus tests? A litmus test is the use of a litmus paper to test the acidity or alkalinity of a solution.
In investing or business, you should also apply a few simple tests before deciding to pull out that hard-earned money from your pocket.
Here are our four simple investment “litmus” tests:
1. The investment offer must be clear and easy to understand.
No hanky-panky’s. No gimmicks. No tricks. No flowery words.
When selecting an investment vehicle or any business opportunity for that matter, make sure that the broker or dealer clearly explains their investment product or services. Investment categories such as stocks, bonds, and pooled funds are some of the most popular paper assets being offered to the public these days. “Hard assets” like gold or real estate may also appeal to you.
Before parting with your money to invest in these assets, make sure that you have attended seminars or trainings provided by the appropriate government financial institutions and have researched about them yourself.
2. There should be a good “chance”, but not a guarantee, to make money.
While you should be investing in assets that will make you money, an investment should not offer a guarantee to make big profit in a short period of time.
There are investment vehicles such as government or corporate bonds that offer fixed returns after a specific number of years. But don’t expect your money to double within that period since earnings from this instrument is relatively small, just a tad bit higher than “cash” investments like money market and time deposits.
If someone offers you a guaranteed return in the stock market, stay away from it right away.
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3. There must be a ready market if you should need to liquidate or sell your investment.
There have been stories of overseas Filipinos investing in real estate and gold bars but were not able to liquidate them at a profit. Some could not sell their properties or condo units because the location is simply not profitable.
When investing in an asset, make sure that there is someone who is willing to buy your investment at a price that you desire and at a profit that matches your personal financial goal.
4. The investment should not be relatively expensive to buy and sell.
Have you heard about people being duped because they believed that they will get big profit if they invested a bigger amount of cash?
A good investment should always be affordable to buy and sell. It should also offer you a reasonable amount of time for you to decide before investing in them.
Are you ready to “litmus test” your investment options?
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Agreed with this one, especially number 1.
To the prospective investor:
Make sure you understand what you’re buying! Know how it makes money, and you also have to know if it’s legitimate. If you don’t, you might get scammed. And even if it is legitimate, if you don’t know what you’re doing you’d lose money.