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The Numbers Don’t Lie

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Three Tips to Find a Good Investment

During your journey to financial freedom, you will hear many stories about investing. For example:

  • A financial advisor may tell you how an industry is about to have a huge, growth explosion and the stocks he is selling you will skyrocket in value.
  • A real-estate investor may give you first dibs on an apartment she is selling near a growing area in Detroit where there are plans to build a manufacturing plant along with hundreds of new jobs.
  • Your cousin may ask you to invest in his new invention to remove bed bugs, but he doesn’t have a solid business plan in place.

Every investment has a story, and it’s up to you to figure out if you’ll participate in how the story plays out or not.

Since I started my financial education, I’ve heard many investment stories like these. I listen carefully, but then I look at them as mysteries that need to be solved. Recently, I talked about the importance of becoming familiar with numbers in your quest for financial freedom. Well, numbers play a huge role in choosing good investments from bad investments. When looking at a potential investment, you rely on your financial education, experience, guidance from mentors and coaches, and your instincts. But more important, you rely on the numbers because…

The Numbers Don’t Lie.

When it comes to investment stories, look at the numbers. If someone pitches an investment to you, ask for the numbers. If they give you a huge prospectus or presentation that gives a good, first impression, ask for the numbers. After all, as I say in “It’s Rising Time!”...

“The bigger the brochure, the worse the deal. If the offering is not clear and concise, then chances are, the investment is anything but great.”

So how do you figure out if an investment is good or bad? Ask these questions:

  • What are all the numbers related to the investment – past, present and worst- and best-case scenarios of future numbers?
  • Why and how will this investment increase in value in the future?
  • What is the expected rate of return on the money I put in this investment?

Use these questions to obtain information and start your research. Even if you trust someone, check to see if their numbers are correct. It’s a good learning experience. Plus, people trying to sell something tend to expand the truth... even if they are powerful and respected. For example, according to an article in Harvard Business Review, a study done by Dana Carney from Columbia University Graduate School of Business found that, “a sense of power buffers individuals from the stress of lying and increases their ability to deceive others.”

The numbers don’t lie. Keep this in mind as you move forward on your journey to financial freedom. Learn to overcome your fear of numbers and use them to uncover the mysteries of a good investment versus a bad investment.

What are you going to do today to increase your knowledge of investment numbers?

For help, check out our free, Rich Dad financial education community here.

Original publish date: January 24, 2013

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