Finding the right investment that suits your needs can be a difficult task. However, the following questions are helpful to ask yourself before investing into any company.
These questions will help you determine whether or not the investment is worth it and if you will truly benefit from it.
In this article, I’ll be going over five questions that will help you weed out the good investments from the bad. The five questions are:
1. What is My Investment Goal?
Investing is a very personal process. Everyone has his or her own goals and needs. If you are trying to fund your retirement, then you should only get into these companies if you feel comfortable with their products and services.
You need to choose your investment goals wisely. Take the time to really think about what your personal goals are.
Setting a short-term goal can be detrimental to your investing future. Don’t let emotion interfere with your judgment when it comes to setting these goals.
Remember the saying “buy low, sell high” and be patient with yourself. You should never base your investment decisions on feeling because it is done after you have made a wise choice.
Also read: The Safest Way To Invest: Fixed Deposits
2. Does the Investment Match My Risk Tolerance?
You also need to assess your risk tolerance. Risk tolerance is a measure of how much you are willing to lose in the case that something happens inexplicably in the investment.
This means that you need to decide how much you are willing to lose before making an investment.
As an example, if you are willing to lose all of the money in your account, then there’s no reason for you not to invest in stocks or dividend stocks because it is very possible that they will go up and then down again.
This is not a wise move because it will cause your account balance to go down even further and it will be difficult for it to recover from its losses.
On the other hand, if you are very risk-averse, then you shouldn’t invest in stocks that pay a high dividend. In this case, the only thing that can go wrong is the company going bankrupt and failing to pay out their dividend.
3. Does the Investment Fit Your Diversification Strategy?
Diversification is the concept of spreading out your investments across different stocks and bonds. This will allow you to minimize risk and invest with less fear in your heart.
Although diversification can lower the risk of losing money, it does not guarantee that you will always make a profit.
Some investments don’t fit into your diversification plan, so they are better off left alone or sold for a profit. You should have more than one investment type in order to properly diversify your portfolio.
For example, you should have several stocks from different sectors to be able to accommodate for sector specific risk factors that occur from time to time.
4. Do I Know Enough About the Investment?
You should also know enough about the investment itself to make an informed decision. Don’t invest in something just because an advertisement tried to sell you on it.
Instead, seek out information on the investment by visiting a website, asking friends and family for their opinions as well as speaking with professionals before investing.
As an example, if you are considering investing in pharmaceutical stocks, you might want to know more about them before making your decision.
There are many factors that go into choosing the right pharmaceutical stocks and you need to be familiar with those issues before deciding to invest in them.
If you have chosen the right investments, then you will be making money and at the same time, you will be learning about new opportunities that will come your way.
5. What is the Cost of Investing?
The cost of investing should not stop you from making intelligent investment decisions. Not every investor has access to or has the money to invest in the stocks of companies they would like to own shares in. This does not mean that one should be prevented from investing just because of cost issues.
Investing in mutual funds is often a great way to minimize investment costs and still get exposure to many different companies at a low cost.
It’s important when choosing any investment to keep your costs as low as possible, while still making an acceptable return on your money.
One should also know how long it will take before they can begin seeing capital gains on their investments. It is important to find an investment that will allow you to begin seeing profits as soon as possible.
6. Do I Have a Plan ?
A comprehensive plan for your investments is one of the keys to successful investing. You must know what your investment goals are and then make a plan that will allow you to reach those goals.
One may want to invest for retirement, or they may simply want to accumulate enough money in their account so that they can quit their job and spend more time with their family, friends, and other loved ones.
Whatever your reasons are for investing, it is crucial that you have a solid plan in place before beginning any investment program.
7. How Much Money Do You Need To Start Investing?
I’m going to be brutally honest here and tell you that you don’t need a lot of money to invest but you do need to have a plan and strategy in place before each purchase. The investments that work best are ones that are well researched, one time use investments.
However, there are other ways to profit from shareholdings in a company. While the percentage return is often much lower than with stocks, it can be an incredible way for new investors to get started.
You should always understand that the risk of losing money is ever present.
If you are going to jump into any investment, you need to be fully aware of that fact.
You cannot spend money on investments just because they are being sold by someone who has convinced you that the investment is safe and will bring to you to a better financial place.
Also read: What Is ELSS And How to Invest In ELSS
Before you begin investing in any stock or shares, you need to know whether or not you are making a wise choice in the investment itself.
If it checks all of the boxes on this list then you should go ahead with your plan. If not, then perhaps it is better to spend some more time finding a better investment than to jump into one that could end up costing you more than just money.
Investing in stocks can be a lot of fun, but also has a lot of risk involved.