Wealth Building Lessons

There really isn’t any perfect investment, but you still need to know the characteristics of an ideal investment. Here’s the 5 basic criteria to look for.

1. High rate of return:
   A compound rate of return that outperforms inflation, taxes, and other investment alternatives. If you buy a business or stock at a cheap enough price, it increases the possibility of getting a greater return.

2. Safety
   You want to be sure that your investment is safe and there is minimal chance of loss.
3. Good Liquidity
   You should be able redeem the investment for cash at any time, without fear of penalty.
4. No income taxes
   Any investment that is either tax-free or has the ability to defer taxes enables a much higher rate of return.
5. Totally passive No special skill or knowledge should be required to make the investment. No active management should be required. You should be able to forget about the investment and enjoy life.

Of course perfect investments don’t exist and you shouldn’t expect to find all five criteria in every investment. If you find absolute safety, you should be willing to give up some return. You usually have to give up one or two of these guidelines to get enough of the other three or four. But some points are deal killers. If there’s not enough safety, return, and liquidity, you should pass.

Keep these five criteria in mind the next time you’re putting money to work, and you’ll always make great investments.

Related Posts:
Tax Advantaged Investments.

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