When thinking about getting involved in investments there are several points you should consider
- Always aim to understand what you are investing in.
- Always aim for a margin of safety
- Be patient, sit back and keep a watchful eye on your investments
- Be aware of the risks inherent in the market you are investing in
- Make sure you can afford your investment.
Starting out as a newbie in the world of investments can be scary. Research and read around the subject as much as you can, and where possible ask others for advice on investment markets. Start out with a fixed budget in mind, for instance $1000. Invest wisely and cautiously at first until you learn the ropes. If you are uncertain you could use to invest in mutual bonds via a company who will use their expertise to try and get you a profit on your initial investment, otherwise you may prefer to try out stocks and shares. Be aware that there are risks involved in all investments and whilst there is a possibility you could earn lots, there is also the possibility that your investment may dwindle away- stocks and shares are very variable.
There are lots of frauds and scams that go on, so try to keep up to date with what is happening in the financial world and what type of scams are out there. Well known frauds include
- Enron, massive accounting fraud forced the company to go bankrupt.
- Bernard Madoff a New York money manager pulled off fraud worth $65 billion.
- The Lehman brother’s investment bank went bankrupt causing shockwaves around the world.
- Cendant cost investors $19 billion when accounting fraud was uncovered.
- M.F Global went bankrupt losing $1.6 billion in customer assets.
- WorldCom, a telecoms company became bankrupt due to fraud.
- Fannie Mae misled investors about the high risk investments they were involved in and top executives were charged with securities fraud.
- Qwest communications were found guilty of a multiyear accounting fraud which saw stocks plummet from $64 to less than $1.
All of these frauds and bankruptcies impacted heavily on their investors and lots of people lost money. Fortunately transparency is the new buzz word in the financial sector, so hopefully these large organisation frauds will not occur again, but it is always good to be aware that there are risks involved in investments.