So, why do I say your rate of return on your investment may be overrated? You may be wondering how something so important to our income and wealth could even be overrated.
My guess is you are the kind of person that asks this question before you invest in anything. If so please pay close attention because this is really NOT the first question you should be asking when it comes to an investment in anything from real estate, apartment communities, gold, stocks, bonds, silver, crypto, you name it.
Of course, in general conversations about the topic of investing that I have with people, this question comes up and it is usually the first question that people ask.
“What is my rate of return going to be?” or “How has the rate of return on that over the last few years been?”
Now, before I go any further, I do understand that this is of course an important question and one that we need to know. So, I am not going to try to pull the wool over your eyes and attempt to talk you into thinking that rate of return is not important. Of course, it is. Many of us depend on rates of return to increase our income, wealth and subsequently our financial well-being. It is a question that I too want to know about and ask about as well. However, there are important questions that you need to be asking before you invest in anything that have nothing to do with the rate of return on the investment.
The Six Investment Questions You Always Need To Ask First That Have Nothing To Do With Rate of Return:
Always ask yourself the following questions before investing in anything:
- *It’s Core Values. Does this investment have the Same Kind of Core Values That You Do?
- *It’s Place. Investing In A “PLACE”. Is this an investment place you can relate to, understand, want to be a part of? Feel good about? Feel comfortable about?
- *It’s Protection. Is the investment a place of protection from outside forces like political, economic or social events?
- *It’s Trends. What are the trends you are seeing with the investment on a financial and personal level? With your current or proposed investment do you know or feel strongly about how it is trending?
- *It’s Demand Now and In Future? How do you feel about the investment’s demand now, in five years? In ten years?
- *It’s RISK To Your Investment? Is the investment going to take you on wild swings in value, income or both? Can it be swung both positively or negatively based on the good or bad news of the day? Remember, many investments react by increasing and decreasing in value every day based on news and information that in many cases have absolutely nothing to do with the investment. Will this investment do the same thing?
Let’s now use an investment example – FTX.
I had a bunch of investors about 18 months ago tell me how great the investment was and what kind of returns they were getting. Some into the triple digits! Wow! This must be “the place” for an investment huh?
You read the six investment questions you need to ask we just covered. A quick read-through of this list would tell you before you even invest, that it may not be the right place to be for you after all.
But, thousands of people cared about one main thing – the rate of return! Now today we know how this story is going to end. These investors got burned big time! The losses are now huge with no end in sight as the ongoing investigations continue. Why is this? At the root of this, it is mainly because investors cared about one thing with no consideration of anything else and that one thing was the rate of return.
Establish Your Investment Litmus Test Starting Today
One great way to avoid becoming a statistic of one of those investors that lost most or all their money or an investor that is just not getting the insulation and protection they deserve is to use our six-point list as your litmus test before investing.
The good news is this litmus test takes only about five minutes to use. When considering adding to or investing in your next investment ask yourself these six questions first.
Think of it this way, if you cannot get comfortable with these six important considerations first the rate of return on the investment does not matter if in the end you either lose your money or are deeply disappointed in the results of the investment.
So, take a look at this short punch list often. Print it out or write it down if you like. Let it be a
reminder that there are important but simple investment considerations other than just rate of return and the most successful and mature investors that I have worked with over the years have understood this.