Tip Content Provided By: Financial Finesse
Are you a fan of Shark Tank? It’s must-watch TV in my household — we love the creativity of the business pitches and the investment insights of the sharks. One of the realizations I’ve had while watching is that much of the interaction between the sharks and the business owners is about one simple thing: What is the business and does it make money? Here’s how that insight can translate into making your own investment decisions.
Ask the following questions:
How much does it cost for me to invest in this? The biggest point of contention on Shark Tank is the dollar amount at which to invest. Every investment opportunity has some cost. The question you should be asking is what value are you getting for the cost and is there any other type of investment that could give you better value for that cost? When comparing investments, it helps to have a third-party resource that can give you reliable information. A couple of resources I like to use are Morningstar and Yahoo! Finance.
How is this better than what I am currently doing? In many cases the sharks will turn down an opportunity if the potential income is not more than what they could earn on their own. If you are considering making a shift in what you are investing in, first do some research to determine what you could earn after fees. For instance, if you are considering whether to rollover your 401(k) to an IRA with a financial advisor, be sure to compare the returns of your current plan to whatever an advisor may recommend.
Is it simple? You’ll notice the pitches on Shark Tank are no more than a couple of minutes long. The sharks may ask a few follow-up questions but the investment concept must be relatively easy to understand. If you cannot get the basic idea of how the investment makes you money in a few minutes, then it may not be the best investment at that point.
I have had the opportunity to witness how investing concepts play out over long periods of time and anecdotally, simple beats complex. It’s not just me, there is some great research on this topic out there. When an investment is simple, it is easy to remember why you made the decision to invest in the first place. That can make it easier to stay invested for the long-run.
Do not be intimidated if you are struggling to make sense of an investment. If whoever is selling you the investment opportunity cannot explain to you in simple terms how it works at a level that is comfortable for you it makes sense to follow Warren Buffett’s advice: never invest in a business you cannot understand.
You may not have the resources or business experience that the sharks have, but by answering these three questions, you will definitely be swimming in the right tank.