Some people think of the most successful investments as exotic and hard to understand. Actually, I have found the opposite to be true. Investments can be boring and unsexy. In fact, I have found that it is precisely those investments that tend to be the most successful. Why is this? Check out the following characteristics of successful investments.
1️⃣ They Are Proven Models for Success
Great investments, such as real estate, are proven models for success. Many people before you have found success using this particular strategy or asset class and you can simply follow their best practices to duplicate that success. Unfortunately, many people are lured by the new, unproven strategy or asset class in hopes of making it big. While the rewards can be extraordinary, the risk and likelihood of failure are immense.
2️⃣ You Understand Them
One way to test whether you are considering the right investment is by gauging your understanding of the investment. If you cannot understand it, do not even consider it. Your investment should be something you understand and can explain to others. There is no special ingredient. Just good old-fashioned fundamentals.
3️⃣ They Pay You To Own Them
Proper investments pay you to own them by producing cash flow. For example, a rental property pays you each month, a note pays you each predetermined period, etc. Regular cash flow is the reward an investor receives for the risk of their investment. Sure, other investments may not pay you now and present the possibility of a big pay day later, but the risk of failure or loss is much greater.
Notice any common themes? Each of these describe risk. The best investments are those that present the optimal balance between risk and reward. When others have done it, you understand it and you are getting paid, your risk has been properly compensated with reward. Seek out wise investments that virtually eliminate your risk by asking “What is the worst that could happen.”
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Rodney Robinson II