Investing is an effective way to grow wealth passively, or for a goal like retirement.

However, as any long-time investor will tell you, each investment type carries some level of risk.

As there are also many different types of investments, such as stocks, real estate, or cryptocurrency, before you invest in any, you should take the time to research the kind you want to place your money in to improve long-term outcomes.

So, here are some tips to help you along!

Understand What the Investment Actually Is

Firstly, you need to understand how exactly investment works. You should know what generates returns, the factors that influence the performance, and what could cause loss. The stock’s value, for example, will depend on a company’s financial health and market conditions. Cryptocurrency is more volatile, and its value is based on how many people are trying to purchase it. As cryptocurrency is one of the newer investment options, you will likely need to do some more reading into this, and should check out trusted platforms like CoinEx.com. If you can’t make sense of an investment, don’t put any money into it!

Analyze Risk and Potential Reward

Investment is a risk that you have to assess. What is the trade-off between the risk and the return? Higher potential returns will often come with higher volatility, such as cryptocurrency, which equates to a greater chance of loss. You need to consider how likely it is that any investment would lose value and how severe the losses would be to you. How long might it take you to recover financially from them? If you are pretty risk-averse, it makes sense to invest in something smaller that is more stable in value, such as gold or silver.

Review Financial Performance 

A core advantage of investments like cryptocurrency is that historical performance is accessible to everybody via the public ledger. As is the way with other stocks and bonds, before investing in them, you should review the historical performance and underlying financial data. If you’re investing in a company, this should include the revenue growth, the profitability, and the debt levels. If you are going to invest in funds, it can involve looking at past returns and the composition of the portfolio. This does not guarantee future results, but consistent trends can give you insight into the stability of the investment.

Consider Time Horizon and Liquidity

How long can money remain invested? An investment plan should align with this and should coincide with the timing of what you are investing for, such as retirement. Some investment opportunities, such as in retirement accounts or even private investments, can require capital to be locked in for many years. However, publicly traded stocks can usually be sold or liquidated quickly. Speaking of liquidation of stocks, you need to understand how easily an investment can be converted back into cash, especially if you are somebody who may need access to funds at short notice. Mismatching time horizon and liquidity can lead you to need to sell at an unfavorable time, costing you money.

Look at External Factors

The costs of investing will have a significant impact on any long-term returns, so when you are considering looking at investing in an area, make sure you understand the investment fees, transaction costs, and the tax implications. Even the smallest fee can become a compound problem over time, which will reduce your overall gains. While this can feel impossible to predict (and it kind of is), external factors such as economic conditions and regulatory changes can also have an impact on investment strategy and pricing. So, read up on all of it before placing a penny into any investment plan.