Council Post: Three Red Flags To Consider Before Making An Investment

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Matthew R. Meehan is a leading finance specialist and CEO Shield Advisory Group, He specializes in helping SMEs access credit and capital.

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So you are ready to take the plunge and start investing your hard earned money.

It can be an exciting prospect to make your money for change work for you. Anyone who is serious about building wealth and protecting assets against inflation should consider investing. But whether it is the stock market, real estate or a startup company, handing over a portion of your salary is serious business. Before you sign on the dotted line, keep these three red flags in mind.

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Red Flag #1: If it sounds too good to be true, it probably is.

Let’s start by clearing the air and stating the obvious: Any investment is a risk., There are no guarantees. If there was nothing to lose, everyone would be doing it.

Promised profits don’t exist in the investing world. If some silver-tongued devil is giving you his best sales pitch with the pie-in-the-sky assurance of guaranteed ROI, run. They’re like traveling salespeople who are gulping down snake oil as a cure-all.

Remember, your hand is above when it comes to investing. It’s your money that they want, and you have the power to decide whether they deserve it or not. A good investment opportunity will speak for itself because it is solid, not because someone talked you into it.

Red Flag #2: The stock is rising.

A stock that is rising in value is a good thing, isn’t it? Why wouldn’t you want to get on that money train? Well, it depends. While it can be a sign of good things to come, it can also foreshadow a grand accident.

Moving away from current stock prices is not enough; You need to dig into the company itself. And if a stock is rising, but the company is strugglingWell, that’s a red flag. Here are some factors to consider:

• View company financial reporting. Are they growing quarter on quarter? How from year to year?

• Are they investing in resources and technology that will continue to increase their productivity and profitability? Or are they maintaining the status quo?

• What is theirs debt to equity ratio,

• What is the price-to-earnings ratio of their stock? You want investments that are fair value or undervalued,

Investing in its stock is a major risk if the company is no longer investing in itself, is taking on a lot of debt or has a flat financial position.

Just ask anyone who has put their savings account at GameStop. Many uninformed investors only saw the dollar signs and stock prices rocking and ended up Lost Next month’s rent. Sometimes aiming for the moon will take you among the stars. And sometimes, you’ll fall to the ground, losing every penny.

Don’t buy just because you’re seeing positive price action – at least, not until you do some research first.

Red Flag #3: Because of you and your investment.

Yes, you can be one of the biggest red flags when it comes to investing. Before making any decision, consider the following carefully:

• Are you investing based on emotion?

• Are you getting carried away with the meme stock excitement?

• Are you putting money into something for fear of getting lost?

• Do you know what your own risk tolerance is?

• Have you done your own research, or are you relying on sound bites and tweets?

• Do you have a clear picture of your current financial situation?

• Do you know exactly how much you are able (or willing) to risk and potentially lose?

• Are you investing for long term goals using a short term strategy?

These Are the Tough Questions You Should Ask Yourself—And Answer Honestly,When it comes to your investment decisions.

At the end of the day, none of us have the crystal ball to predict the future. We can only gather facts, do our research, be aware of these red flags and make smart choices based on the information we have in front of us.

The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice regarding your specific situation.

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. am i eligible?

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