Around three-fourths of venture-backed startups fail to return investors’ capital, and according to Mattermark data, over two-thirds of startups never raise their Series A investment round. Clearly, when bright-eyed small-business owners tell you they’re sure their business will succeed, they’re probably wrong. So if a friend asks you to invest in their business, I recommend caution.
But how can you exercise caution while still taking appropriate risks in investment? The key is to find a balance between optimism and caution. That leads you to confidence, which is crucial for an investor to sleep well at night. Here’s how to find that balance:
Be Optimistic About What You Can Control
Warren Buffett said, “It’s optimism that is the enemy of the rational buyer.” That’s important to keep in mind when you’re deciding when to invest and what to invest in. Nothing is certain, so when you feel optimistic about an investment, make sure you can back up that feeling with solid reasoning.
While investing involves many factors you can’t control, there are lots of things you can control. As long as you’re making solid decisions in these areas, you can be optimistic about their outcomes:
• What you do with your investments: They say time in the market is better than timing the market. Only you can choose when to sell. When you leave your investments alone, they generally do better than if you pull them out whenever the value starts to dip.
• How familiar you are with the market you’re interested in: Only you can keep yourself financially educated. When you know what’s going on, you can be more confident and optimistic about your choices.
• How much you diversify: Only you can choose to put your eggs in a good number of baskets. When you diversify, you’re more likely to see positive results.
Be Cautious About What You Can’t Control
While you can be optimistic about some factors that are under your control, there are obviously other factors involved in investing over which you have zero control. In a business that is by its nature uncertain, the way to move forward with confidence is, ironically, to be cautious. Take your time, and spend the necessary energy to prepare before making a move. Follow advice from competent financial advisors, and diversify so your financial future doesn’t depend on one stock performing well.
Exercise caution in the factors you can’t control. These include the economy, people who give you poor financial advice and investment trends. So be cautious: Don’t invest in assets that are likely to tank when the economy does. Be selective about the advice you follow. And don’t jump on trends without thorough research.
Find Confidence By Educating Yourself
Business journalist John Boitnott said, “Ultimately, the best approach is probably one of cautious optimism with a healthy dose of pessimistic skepticism. It’s important to fully understand the weight of any decision in its negative and positive aspects.” This is true in the investment space, too.
When you strike the right balance between caution and optimism, that’s confidence. And you want to be a confident investor. Gain confidence by educating yourself and staying up to date on real estate investment trends.
Let’s say you do a little internet research, leading you to feel optimistic about and pursue an investment in a particular housing market. But then you do a bit more research and find out that market is taking a turn for the worse, and that makes you want to sell immediately. What’s the right course of action? That depends, but to avoid being unwisely optimistic or pessimistic in general, make sure you’re looking at a variety of reliable sources. (And remember that if something seems too good to be true, it just might be.)
Here are some good sources that, taken as a whole, can give you a big-picture view of the real estate investing market:
• Realtor.com/research: Provides general real estate stats, including median list prices, days on market and number of active listings.
• National Association of Realtors: Provides current and pending home sales, home affordability data and housing statistics.
• Freddie Mac: Shares its own research on trends in housing, the economy and the mortgage market.
• Money.usnews.com: Covers news and analyses about investing, retirement and the economy in general.
• GlobalPropertyGuide: Provides data about properties outside the U.S.
How do you find a balance between optimism and caution in real estate investing? The key is to be optimistic about what you can control, cautious about what you can’t control, and confident about the knowledge you get from smart study and wise advisors. Then you can sleep well at night, knowing you’ve done all you can to give yourself the best potential for profitable investments.
Not an offer/solicitation to sell/buy securities. Securities offered through Emerson Equity LLC, member FINRA/SIPC, only in states where Emerson is registered or exempt from registration. All investing involves risk. Speak to your financial professional before investing. Past performance is not indicative of future results.
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