Each and every day more people become aware of the importance of investing
they know that investing is a great way to create wealth and prepare themselves
for the future however only a few people know the right way to
invest successfully to be successful as an investor you need
to understand certain elements there are risks involved in investing
and a good investor wants to minimize the risk and make
more profit that's why in this video i will share with you the four keys to
succeeding when investing and if you're new to the channel then
hit the subscribe button below for more life-changing content key number one
investment returns what is an investment return this is a
profit you make at the end of the day on any investment
it is important to understand this if you want to succeed when investing
it is also known as the return on investment or roi
it is either expressed as a percentage or ratio of the profit to the investment
cost that is the ratio of the total amount of
money you gain to the original amount you invested
it is calculated to show whether you are gaining or losing on an investment
when you invest your money you give up certain benefits of using the money
right now hoping to get benefits from it later the
profit you get from investing is your reward for not spending it
but instead placing it into a growth vehicle
therefore you need to understand some concepts of investing to make the
maximum profit at the end of the day you should take note that a successful
investment should generate a high return at the same time the risk and the
investment cost should not be too high remember that the first reason why
you want to invest in the first place is to make a profit if the risks are too
high it is possible to lose all your money the profit you make from
an investment is a function of the risk that is involved in the investment
investment with a low risk usually generates low investment returns while
investment that comes with a higher risk has a potential for more profit for
example treasury bills are usually safe and have
less risk but the return on investment of treasury bills is slow when you
compare it to other investments with such
high risk like stocks stocks have a higher average return and also come with
higher risk investment returns are either paid as
interest or dividends you can receive interest if you invest
in a high yield savings account or certificates of deposit
popularly known as cds dividends are paid when you own stocks
another way to make money on your investment is to give it time for the
investment to appreciate then sell it for a profit
called a capital gain now it is very easy to calculate the return on
investment and the result provides useful information
to measure the profitability of any investment for example
if you invest ten thousand dollars into a business and after two years your
investments now worth fifteen thousand dollars we can calculate the
investment return to do that we subtract the ten thousand
dollars which is the investment cost from the fifteen thousand dollar current
value the answer is five thousand dollars the
profit after two years is now five thousand dollars to calculate the
percentage divide the profit by the investment cost
and multiply the result by a hundred in this case it will be five thousand
dollars divided by ten thousand dollars and the result multiplied by a hundred
the answer is fifty percent that means that this investment
generated a fifty percent profit in two years key number two investment
cost the next element you need to understand to succeed when investing is
the investment cost you indeed have to spend money to make
more money however when it comes to investing more money spent does not
always mean more profit you have to be careful when it
comes to considering how much to spend on any investment your goal should be
how to spend the least amount of money to get the maximum profit the investment
cost is the total amount of money used on a particular investment
the profit you make from an investment is not always related to the amount of
money you invest the amount of profit you will realize at
the end of the day will be related to the type of investment
and the risk involved generally an investment with higher risk has a
potential for higher profits while investment with a little risk
offers lower returns each time you spend more money than you are supposed to
spend you reduce your potential profit sometimes you don't realize that you are
making this mistake most people think more money spent is what makes the
profit bigger that is why you need to understand what investment cost is to
know how to make the right investment decisions
it is important to take note of every amount you spend on an investment no
matter how little to know the profit you made here are
some investment costs that you may incur when investing beyond your initial
outlay for example investing in mutual funds may cause you to incur
an expense ratio this is like a management cost for the fund and it is
expressed as a ratio this is also an investment cost and it
is debited from the investment return that is if your expense ratio is 0.7
percent you're going to spend seven dollars on
every thousand dollars you invest annually
this may not seem like a big deal until you study it carefully
you will realize that they add up to become a big number at the end of the
day this money doesn't get lost only as an
investment cost they are also lost as they should have
the potential contributing to your return but they end up reducing it
instead for example investing a hundred thousand
dollars at an interest rate of six percent per annum will generate about
four hundred and thirty thousand dollars in 25 years
but if you need to pay just two percent of the money per annum as investment
costs you will end up losing 170 thousand
dollars and be left with a hundred and sixty thousand dollars as profit
that is about half of the profit you're supposed to earn has been lost to
investment cost another cost you may spend when
investing can include maintenance and repair costs
for example if you invest in real estate you may need to spend some amount of
money on repairs and more on the maintenance of the
property you also need to understand that part of the investment income you
earn will be lost to the advisory fee that you pay
it is another place where you spend more money and it can reduce the total return
on investment for example if your investment advisor
charges just one percent of every hundred thousand dollars you invest
that is about a thousand dollars every year paid to the investor advisor
which is also removed directly from your investment returns
some brokers charge you transaction fees when you want to buy and sell shares
these fees are usually fixed and the disadvantage becomes more obvious when
you're transacting with a higher amount of money key number three
investment risk risk is part of everyday life and
it also comes into play when investing simply put there are risks involved when
investing jim cramer once said every once in a while the market does
something so stupid it takes your breath away it is
therefore important that you know what investment risk is all about
so that you will understand how to avoid them and also learn how to solve them
when you encounter them generally investments with higher risk often have
the potential for higher returns your goal is to invest in things that
will give you the maximum profit with the lowest risk
therefore you should consider the risks that are involved in investment
before moving your money into it there are different types of risk you may come
across when investing the first one you need to understand if
you want to succeed when investing is liquidity risk liquidity risk
explains how easy it is for you to convert your investment to cash whenever
you need it all investments do not have the same
liquidity you should consider how easy it will be for you to remove your money
when you need it while it is easier to sell things like
stocks and shares it may take a longer time to convert assets like real estate
to cash location is also a risk factor in real
estate investment you may lose your investment return on
real estate if the location is not favorable for the market
your location can make or break the returns you realize
on your investment there are also market risks involved in
investing you can invest in a company that may go out of business
this is a real risk when investing and one that you should aim to avoid
there is also an investment risk for inflation which is when the rate of
increase on your investment is lower than the inflation rate on the
asset you own when this happens the purchasing power
of the amount you invest is actually lower
than what you might expect to receive then there's a risk that exists when you
invest in very few stocks if any of the few investments should
take a wrong turn you can quickly lose all of your money
the best practice is to diversify your portfolio and put your money in both
high and low risk investments finally there is financial literacy
risk if you don't know enough about an investment you may end up making the
wrong choices and spending more money than you should
to be successful when investing you have to consider the risks involved before
making your decision sometimes as an investor you have to act
immediately or wait till you get more knowledge about the investment at hand
as an investor you want to understand how investment risk works
warren buffett said that risk comes from not knowing what you're doing
and he also advised that you should invest in what you understand
key number four analyzing the cost benefit trade-off
the last element you need to know to be successful when investing is to analyze
the cost benefit of the investment analyzing the cost-benefit trade-off of
an investment is how you decide whether to invest
in a venture or not you do this by comparing the potential benefits that an
investment will have to the risks involved in such investment
it is used to determine which particular investment will make more profit
and this activity is typically done with a long-term view in mind
to calculate this you must assign a monetary value for all the risk factors
involved in the investment then you must list all the investment
costs involved in the investment you will also need to give a value to
the investment return you expect at the end
of the year the proposed benefit of profit is calculated as a net present
value in essence it is adjusted to know what
the profit will be when adjusted for inflation the cost
benefit is calculated as a ratio of the benefits to cost
the total monetary value the benefits and the cost is then compared
if the ratio is greater than one it means the investment is profitable
the aim of this is to spend less money on investment costs
and also expect more money as investment returns
it will allow you to decide which risk you are willing to take to make
maximum profits so there you have it these are the
four keys to succeeding when investing thanks for watching
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