The Rule of Reward in Finance - #2

You are what you consistently do financially.

Today, let’s discuss the rule of reward in finance. There is a reward system, and it is built on several factors. 3 years ago, I wanted to help people invest so I shared a questionnaire to have an idea of their expectations of the risks and rewards. I was not shocked by the responses that I received. Millennials just want little risks and high returns with volatile investment assets.

It is risky to chase unrealistic financial gains. For months, I consistently advised people not to chase these “forex” and “money doubling” schemes. Then when I asked about the business model, investment offering, management team, government approval, and registration, the response is always “They are paying my friends. Let me cash out too”, “I was told you lose 100% of the chances you don’t take.”

One of the problems I had with this “cash out” mentality was the addiction. Every chain smoker did not start with ten packs of cigarettes in a day. It’s the continuous use that led to the addiction. Yea, I was right. All of the guys that ”cashed out” on their first project went ahead to invest in another project. Some stopped after they got their fingers burnt on the second project. Others continued because they wanted to revenge for the loss on the second project. It’s a sad tale of an unending cycle.

Let me tell you four rules of rewards you must never forget:

1.       If the business is too good to be true, then it’s too good to be true. Read it again. If the owner can’t explain the business model to you from start to finish, please run.  If they can’t explain it to you, how will they acquire customers, inspire the employee, and sustain the business? Never invest in any business where the reward is not as clear as the business.

2.       Never invest in a business you don’t understand the risks. Ask questions, never assume. You must know and understand the risks involved in the investment you want to put your money. Until you fully understand the risks involved, please ask questions.

3.       If the business is too busy to get approval from the regulatory bodies, then the business is not worth your money. There is no one that is genuinely interested in doing business, they won’t chase regulatory approval. If they consistently refrain from talking about their regulatory activities, they are probably doing something wrong.

4.       Past performance does not guarantee future rewards. There is no guarantee that a business that declared an enormous dividend in 2022 will do the same in 2023. Invest in the business model and strategy. The net return over the years will thank you for it.

5.       The management is as important as the business. This is so important. A business will do better to the best of management’s decisions. Always track management activities. Every scrupulous spending is always traceable to management.

You can’t outsource your finances. As I often say, “you are what you consistently do financially”. If you enjoy this content, share a snippet on your timeline or status.

I hope this helps. 

Your Finance Coach,

TL.