Many people spend a great deal of their time and energy looking for ‘The Perfect Investment’. Over the past three decades, I have repeatedly had clients actively seek an investment that will produce a steady double digit return risk-free. This ideal investment – high reward for no risk – has become the elusive ‘Holy Grail’ for most investors. Too many investors, following the latest hot investment tips without doing proper research, end up disappointed, disillusioned, and potentially demoralized when confronted with their losses. Even smart investors are too easily motivated by greed and don’t use common sense when confronted with a ‘get rich quick’ investment scheme that sounds too good to be true.
The simple truth is that every investment carries risk. Even not investing carries risk – inflation can decrease the value of your ‘nest egg’ and reduce the purchasing power of your money! The first step, and the key to successful investment, is fully understanding the risk you are exposed to and using management tools such as portfolio diversification to reduce your overall investment risk. The next step to becoming a successful investor is to stop listening to others for financial advice. You know the kind: the advice offered at social gatherings and in break rooms, from people who, quite frankly, really don’t understand what they are talking about. Have your own investment rules and stick to them. These are rules and guidelines you establish to stop you from making rushed emotional investments which almost always end in a loss.
Cultivating investment mentors – successful long term investors whose opinions you trust – is the final and, in my opinion, most important step in the process of becoming a successful investor. If you ask these mentors for investment recommendations, be prepared to really listen, as these sources should have no ulterior motive. Your best mentors will often be close friends and family members. In some cases, they may offer you the name of a trusted Financial Advisor, or share what I call ‘established investment truths.’ These truths are the rules of investing that they have successfully used over the years. A few of these successful investors might even recommend that a portion of your diversified investment portfolio be invested in shares of a first mortgage MIC such as First Accredit Mortgage Corp. They might even say that it’s as close to a perfect investment as they have found.