This or that one? When you’re trying to pick between 2 investments, finding which to put your money into can be a chore.
While it can be tempting to invest in what might grow the fastest, there are other things you should consider as well. That way, you’ll have a better chance at success.
Risk suitability
The risk suitability of any investment product you are considering should match your risk profile. That way, you won’t expose your money to more risk than you’d be comfortable with.
While it can be exciting to see high growth potential, getting swayed by the prospect of making more money with that asset could lead you to a decision that causes some anxiety and doubt later. Given that, following your risk profile can help you avoid this.
Growth potential
The growth potential of an investment is something that you need to check. After all, you wouldn’t want to invest in something that doesn’t have a chance of earning the amount you need by the time you plan to use it.
However, the growth potential alone isn’t enough to pick one asset over another. You can consider all those that might help you achieve your financial goals and then use other aspects of the investments to guide your final choice.
Portfolio compatibility
Once you’ve determined that the growth potential of both options is viable, you’ll need to see how each could fit into your portfolio.
You can look at all your investments and check if you are allocating too much money to an asset class or industry. If you see that you will not be following best practices for diversification, then putting money in that investment might not be the best move for you.
You should also check the strategy you’re following and the goal for that portfolio to see if the investment products you’re considering are a good fit. For example, if you’d like to earn a regular income stream, investing in assets that pay interest or dividends can help you achieve that (like bonds, certain stocks, and REITs) might be more appealing.
Prospects
It’s possible that the 2 investment options you’re considering match your risk profile, have similar growth potentials, and would fit well in your portfolio. In that case, you can look at their prospects to help you decide.
This step is research-intensive because you’ll need to look into many factors. These include the history of the companies or organizations offering the investment and current and upcoming economic conditions likely to affect performance.
What you could find, however, could spell the difference between a successful investment and one that didn’t work out as you expected.
