What questions should you ask yourself before investing?
In investing, it is a generally known fact that the potential for greater profits always goes hand-in-hand with the potential for greater losses, but before venturing into this field or before you begin to make an investment; here are few of the basic questions that every beginning investor should always ask:
When are you likely to need this money?
This is a probability question. You should learn to deal with the odds of investing versus time in the market. Time has the great power in modifying investing gravity in your favor. Investing always involves the risk or the reward trade off. But as a general rule, the longer your money is kept in the stock market, the lower your odds of losing it and the better your odds of beating low-risk bond rates. The larger your emergency savings buffer, the safer are your stock market investments. Also, the more distant your financial goals, the safer are your stock market investments.
So, before you invest on anything, be sure to ask this question: When am I likely to need this money? Also, be sure to give yourself an honest answer. After all, that is the main reason why you are asking this question in the first place. You want to guide yourself into making the right decisions when it comes to your money and your investment. In answering this question, you should also take into consideration the potential emergencies along the way.
What would happen if you lost this money?
This question involves severity. What will happen if you don’t beat the odds? One very important aspect and the very important risk that you will face in investment is that not all one-in-a-hundred bets are created equal. In investing, you should not only focus on the risk of making a mistake, you should also look at the risk of missing an opportunity.
Before you venture into investing, you should take a moment to ponder into the idea of risking your money to make more money and the idea of when you have enough money already.
Do you understand the investment?
Never invest in something you don’t understand. This is the rule of thumb that most successful investors follow. Before investing, be sure to read an investment’s prospectus or disclosure statement carefully and make sure to understand if. If you can’t understand the investment and how it will help you with your goal of making money, ask a trusted financial professional for help and clarifications. After this, if you are still confused, you should seriously consider thinking twice about investing.
Where can you turn for help?
Always make it a habit of reading and using the information and tools on securities regulators’ websites. You should also ask this question and you really should have clear answers to this one: What impact will a loss have on me and my family?
Investing could be fun. It is. But these questions need to be asked before you get started on investing to make your investing life not just fun but also a successful one.