What are the signs of a bad investment? Answering these 3 simple questions will help you to spot good investment opportunities and stay away from bad ones. Although there are indeed many different options to invest in out there, usually investors receive dozens of pitch decks each day; for a US mainstream VC fund it is around 2,000–5,000 pitches a year, but unfortunately, not all of them lead to a good return. Generally, it is estimated that for every 10 venture-backed startups, around 3 companies fail, 4 manage to repay the investment amount and only 1 of them survives while generating substantial returns. Therefore, it is crucial to know how to distinguish between the investment options that will prevail from the ones that won’t. That’s why today we will go over how to differentiate between good and bad investment opportunities. 

Find suitable and appropriate investment options.

According to Dhirendra Kumar, CEO of Value Research, the primary reason why Family Offices may be disappointed with their investments is when they end up choosing an inappropriate or unsuited investment for them. As Guneet Banga, Executive Director for The Caravel Group, Hong Kong, a member of the Global Investment Leaders Club said , “There are three fundamental questions to ask yourself when considering an investment: will this idea bring a better outcome for society? Will this industry look radically different if this scales globally? Are the founders striving to be the best in the world and the best for the world? If the answer to those questions is yes, then it is worth looking in more detail into this investment.” Asking these questions before considering investing will ensure a prudent approach to identifying the best offers.

Be aware of the traits that make a good investment.

Good investments share a set of common traits among them, such as long-term viability, liquidity and market diversification. In fact, research suggests that investments with long-term viability help reduce the average time spent in monitoring the portfolio and help to achieve long-term investment plans. It is also shown that liquid funds carry the lowest interest rate risk because their high liquidity and market diversification minimizes the overall risk associated with the portfolio. Just like Craig Astill, CEO at the Caason Group, Australia, stated at the Global Investment Leaders Club Family Office Gathering, “A good investment is the one that aligns with your core business values and beliefs while also providing direct long-term benefits, managing to create a good and meaningful experience for the individuals that are investing”. An investment opportunity may look good on paper, but if this option does not have any of these traits, do not invest in it.

Pay attention to what the market needs.

Staying attentive to what the market needs might be one of the best ways to ensure a good investment as you can base your investments around that need. For example, Guneet Banga shared details of his successful deal with a young Indian founder who was able to identify what the market needs in India to develop his product around that. He noticed the bad air quality in India and so he developed an air purification technology that can be installed in both residential and industrial sites; this device takes carbon out of the atmosphere and drastically improves the air quality of the place where the device is installed. A project like this that fits the market demand while delivering an innovative product is bound to be a great investment option.

The best way to invest successfully and have good returns is to avoid the wrong types of investment. More often than not, some investment ideas and projects may look attractive at first glance but can end up costing you way more than they should. However, if you follow all the advice listed above, you can avoid many of the investments that go on to disappoint.