Top 5 Tips to Spot a Bad Investment Before It’s Too Late

Not everyone who plays the market well will wind up a billionaire, but many people successfully supplement their income through a series of wise investments. Sometimes, unpredictable things happen that ultimately lead to losses. That’s just the nature of investment, and in some cases, it may be unavoidable. The best thing you can do is keep an eye out for red flags that usually signal that an investment is likely a preventable mistake.

1. Investment Opportunities That Look Like Spam Advertisements

Though most great investments will often speak for themselves, companies often supplement exemplary track records with the promotion of investment opportunities. These should be professional and informative blurbs that link to useful resources. If the company seems like it’s trying hard to be flashy, utilizing poor graphics and a lot of capital letters, that’s more than enough reason to be worried. If they’re not trying to sell themselves on their own merit, it’s worth wondering what they’re hiding.

2. Compare Balance Sheets

Look at the balance sheet of your current investment, and the balance sheet of their competitor. Even if you have an emotional attachment to the company you’ve invested in, it may be unwise to hang on if their competitor is seeing far more success. Unless something drastically changes with that company very soon, their competitor’s growth is likely to continue. This will leave your investment in the dust, and you might want to consider moving to where the money is.

3. The Business Can’t Retain Employees

If employees are leaving in droves, that’s a sign that things aren’t going so well in corporate wonderland. You may hear that birds flock to safety before a storm, and employees migrating away from a company in large numbers is never a good sign. Some turnover is normal, but if a company has a virtually permanent “help wanted” sign, it’s time to get out before things get a little too intense. If the company makes a turnaround, you can always reinvest at a later date.

4. Negative Trends Have Lasted a Year or More

Some investments will dip down a little before they go up. Values dropping for a few consecutive months, particularly if the change is minor, may not be cause for concern. If these trends continue for twelve months or more, that’s usually indicative of an investment that won’t recover. Even if it makes a slow ascent, you’re still losing money until the investment exceeds its initial value. If you have a diverse portfolio, it’s worth relying on companies like MarketMatters the compile this kind of data for you. You’ll be able to tell at a glance.

5. The Company is Too Broad

At first, passing over broad companies may seem counterintuitive. After all, they’re catering to a lot of potential clients. Rather than maximizing the possibilities, this often creates a problem. If the company doesn’t have a clearly defined niche, this makes advertising complicated. When an idea is too generic, it tends to have trouble catching on. Campaigns are expensive, and fail to rope in the expected amount of customers. It may be worthwhile sticking to narrow investments that appeal to current consumer trends rather than companies that boast their ability to do all.

You might not always be able to spot a bad investment before the negative repercussions sneak up on you, and that’s a risk you need to be willing to take if you ever want a chance at success at investment. Remember to keep a skeptical mind before you throw your money around, and consider that some risks are actually worth taking.