Ways to choose the right investment opportunities

Choosing the right investment opportunity is about what you want your money to achieve. Even though investors pay attention to the promise of high returns, financial literacy expert Patrick Wameyo says that the best investment is one that aligns with your goals, risk tolerance, and financial situation.

He says that an investment is worth considering when it offers the potential to generate returns that match an investor’s objectives.

“Those returns may come in the form of dividends, interest or long-term growth in the value of an asset. However, the expected return should always be weighed against the level of risk involved,” he says.

Factors such as age, financial commitments, and investment goals, he adds, all influence how much risk an individual can comfortably take.

The choice of the type of return depends on the risk-return relationship, which is correlated to the age of the investor, among other factors. The potential size of the return then becomes the main consideration.

He advises that before investing, investors should assess how much they can afford without disrupting their current lifestyle. This provides a realistic measure of their risk tolerance. They should also consider how long they can leave their money invested and whether they may need access to it before the investment matures. People can tell the difference between a good and a bad investment by defining their return potential. Liquidity, or how easily an investment can be converted into money, is just as important as its return potential.

Patrick says that there is no universal definition of a good or bad investment. An investment should be judged by how well it supports the investor’s financial objectives while balancing returns, time horizons and liquidity needs.

“An investment that performs well for one person may be unsuitable for another with different financial priorities,” he says.

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He says that one of the biggest mistakes investors make is choosing assets that don’t match their goals. For instance, investing in an asset that can’t be sold quickly may not be good if the money will be needed within a year for expenses such as school fees, regardless of how much the asset is expected to appreciate.

Patrick explains that setting clear financial goals helps investors evaluate opportunities more effectively. A defined objective provides a framework for assessing risk, expected returns and the suitability of an investment over a given period.

Risk assessment should always begin with the relationship between risk and reward. Balancing risk and reward needs an understanding of how an investment is likely to perform under different market conditions.

“Rather than relying on trends or attempting to time the market, investors should focus on the underlying fundamentals that drive an asset's value over the short and long term,” he says.

He encourages investors to evaluate an asset’s potential returns alongside their investment goals, waiting time, and future liquidity needs during the period of investment.

Personal values, he says, including faith-based considerations, may also influence investment decisions.

New investors are encouraged to start with relatively low-risk assets while building their knowledge and experience. Building portfolios gradually by purchasing affordable investments consistently over time instead of waiting until they have accumulated large sums of money.

“Today's investment products allow individuals to start with relatively small amounts, although transaction costs should still be considered,” he says.

However, higher returns generally come with higher levels of risk, thus making it important for investors, especially beginners, to avoid taking on more risk than they can comfortably manage.

He notes that professional advice can help in selecting suitable investments. Before investing, he advises researching stockbrokers and investment banks and verifying the authenticity of the asset and understanding how it generates returns.

He also advises investing only through regulated institutions such as licensed stockbrokers and authorised land agents to reduce the risk of fraud.

Joining a registered stockbroker by opening a CDSC account gives investors access to this information and professional guidance.

He notes that age and life stage influence investment decisions, with younger investors having the advantage of time and may prioritise growth-oriented investments, while retirees typically seek investments that generate stable, regular income.

A person’s financial position ultimately determines how much risk they can afford to take.

Diversification is one of the most effective ways to manage risk.

“Spreading investments across different asset classes helps reduce the likelihood of significant losses because different assets perform differently under changing market conditions,” he says.

Investors should review their portfolios regularly to determine whether their investments are meeting their financial objectives. If returns consistently fall short of expectations or circumstances change, it may be time to adjust the investment strategy after getting professional advice.

He says that buying an asset that will either lose money or fail to yield the expected return when it is almost obvious at the time of investment is too much of a risk. High returns mean high risk; therefore, beginners are advised to invest in less risky assets when their ability to take risk and financial knowledge is low.

“People invest without carrying out adequate research or seeking expert guidance because they are unwilling to pay for professional advice,” he says.

Paying for sound investment advice is usually far less costly than making avoidable mistakes.

Investors, he says, do not invest based on trends, that is, market timing only, but in fundamentals driving the value of the asset in both the short term and the long term. The research report will always give you factors to watch for each investment asset; there are no universal factors.

Successful investing needs patience, discipline and a willingness to keep learning.

“Experience, including occasional losses, provides valuable lessons that improve future investment decisions. Investors are encouraged to focus on building knowledge and making informed decisions instead of chasing quick profits,” he says.