What is Your Definition of a “Safe” Investment Opportunity?
Investors across the globe are constantly in search of “safe” investments. That said, it would seem that the definition of “safe” is different among the world’s investment-seekers. When it comes to investing, what is your definition of a “safe” opportunity?
For most investors, the use of the word “safe” (with regards to an investment) implies lower exposure to risk. This in turn suggest less chance of eroding an investor’s principal and thus represents a good investment. The truth be told, for the “safe” investor it’s more about preserving principle, than it is about delivering wildly profitable returns.
Generally speaking, these 3 types of investing risk can have a negative effect on the performance of investment offerings, but are rarely (if ever) considered by eager investors:
1. Political Unrest
We hang the petty thieves and appoint the great ones to public office. — Aesop
The policy makers representing the region of your investment have a great deal of influence over factors which can positively or negatively affect profits and returns. Perhaps the best example of this influence, is investing opportunities in Russia. These investments have undoubtedly been harmed by the economic sanctions that have resulted from the Russian government’s (alleged) actions and policies in the Ukraine.
2. Economic Uncertainty
The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy. — Milton Friedman
Despite strong, continued investment in global trade, regions entwined in turmoil will struggle to achieve measurable economic growth. For example, Iraq has a number of appealing investment opportunities which are poised to do extremely well, but (in the meantime) are heavily dependent upon building and maintaining economic prosperity in the country.
3. Industry Performance
Globalization has produced a new of level of interdependence among us. The economy and multinational supply chains do not abide by political boundaries. A computer ordered in Brazil is designed in California and assembled in several other countries. Economic integration was the first strong evidence of a new era. — Eduardo Paes
Determining the long-term performance (past and future) of the industry you are investing in will deliver valuable insight that offers you a detailed outlook on performance. In doing so, it is possible to uncover information that discredits less-educated investment critics and those who profess themselves to industry experts/analysts, thereby providing a much clearer view of what has transpired in the past and what to expect in the future.
The three influences named above represent areas of significant risk that less experienced investors may not have immediately considered.They address issues that go beyond asking oneself, “is this a scam” or simple a great opportunity to invest? Looking deep into factors like politics, economics and industry/sector growth will educate consumers about unseen risks, and give answers to outstanding questions and concerns about how “safe” their options really are.
