What Makes an Investment a Good Investment?
Dec 01, 2024Hello Stoic Investors,
Today, I want to address a question many beginner investors ask:
What makes a good investment?
When you’re just starting, the world of investing can feel overwhelming.
Stocks, bonds, ETFs, mutual funds—there’s so much to choose from!
So how do you decide what’s right for you?
Let’s simplify it.
1. A Good Investment Aligns with Your Goals
Ask yourself: Why am I investing?
Are you saving for a house in 5 years?
You might prefer safer investments like bonds or low-cost ETFs.
Planning for retirement in 20+ years?
Growth-focused investments like global ETFs or quality stocks might suit you better.
A good investment is one that matches your time horizon (how long until you need the money) and risk tolerance (how much risk you’re comfortable taking).
2. A Good Investment Grows Over Time
The key to wealth-building is compounding.
This means reinvesting your earnings so your money makes more money.
Look for investments with a strong history of steady growth.
For example:
- Global ETFs like MSCI World or FTSE All-World spread your money across hundreds of companies.
- Quality stocks with healthy profits and future growth potential.
So avoid chasing quick wins like speculative stocks without proper research!
3. A Good Investment Is Affordable
Pay attention to fees.
High fees can eat into your returns over time.
It's better to choose:
- Low-cost ETFs or index funds.
- Brokers with low trading fees and clear, transparent pricing (stay away from platforms that charge too much for each transaction or hide their costs).
Be cautious of "zero-fee" brokers—sometimes, the real cost is hidden in less obvious ways, like poor execution prices.
4. A Good Investment Is Easy to Understand
Invest in what you understand.
If a stock or fund seems confusing or too good to be true, it probably is.
Start simple:
- A global ETF is like buying a little piece of the whole world economy.
- Dividend-paying stocks reward you with regular income.
Keep it simple until you’re more confident.
5. A Good Investment Protects Your Peace of Mind
Your investments shouldn’t keep you awake at night.
Diversify your portfolio (don’t put all your money into one investment) to reduce risks.
Think of diversification like a safety net:
If one investment doesn’t do well, others can balance it out.
The best investments grow over years, not days.
Start small, stay consistent, and focus on progress, not perfection.
Remember: there’s no perfect investment, but there’s a perfect plan—one that suits you!
So, note down these 5 things to determine what makes a good investment and start investing today:
1. Aligns with your goals and time horizon
2. Grows steadily over time through compounding
3. Is affordable with low and transparent fees
4. Is easy to understand and not overly complicated
5. Protects your peace of mind with proper diversification
