TOP 5 FACTORS TO CONSIDER BEFORE YOU INVEST
Investment opportunities abound, but choosing the right investment for one’s self could prove a difficult and undesirable task for some. In our previous posts, Doing away with the Investment myths and How to Save and Invest, we talked about the habits to cultivate in order to attain financial stability, as well as the investment opportunities commonly available in our century. Having followed those steps and fully ready to invest, what are the top 5 factors you should consider before you invest? Read on and find out what these factors are!
UNDERSTAND YOURSELF –
Investing requires, to some extent, a level of self-understanding, in order to guide the potential investor in choosing the right investment opportunity for himself. Understanding one’s self investment-wise involves actually knowing how much you want to invest, determining what your objectives are for investing and knowing your risk tolerance level.
The answers to the questions below are a guide to understanding one’s self, investment-wise.
- How much am I willing to invest? How much can I comfortably spare and invest without incurring debts? Tip – Do not invest with a borrowed money. Go for an amount that you can invest without incurring debts. You surely do not want to invest today and go borrowing for food tomorrow.
- What is my objective for investing? Is it to make more money in less time? Or to keep your money safe while getting moderate returns? If you are aiming for higher returns, then shares and mutual funds are two investment opportunities you could consider.
- What is my risk-taking ability?Do I think a specific amount of money is too huge for me to invest and still sleep comfortably? Would I be able to bear the loss if something happened to this money? Tip – You want to consider the negatives, not because your investment won’t make great returns, but rather to choose the right investment opportunity that will match your needs. However, do not be a pessimist while at it! No one ever got anywhere worthwhile while being a pessimist.
UNDERSTAND THE INVESTMENT OPPORTUNITY –
Having been able to determine what you truly want narrows the various financial investment opportunities down to few choices. At this stage, understanding the choice investment opportunities becomes a necessity. What is the level of risk associated with each of them? Are these risks high or low? What is the level of returns? Is there any hidden potential in this investment opportunity? If so, what is it and what are the odds of it bringing in great returns? – These questions and more are what you should answer. Look for facts and evidence. Do not investigate peripherally, especially if you are aiming to invest in a company. For an investment in a company, you want to look deeply at their financial records, their management team, their work culture, their strengths and their weaknesses. Do not forget to pay considerable attention to their assets, net worth and liabilities.
TIMEFRAME TO INVEST –
Most investment opportunities have timeframe for one to invest, especially if the investor is aiming for higher returns. It is usually advised for one to study the time frames for the investment opportunities, invest when the rates are low, and then sell off when the rates are higher. In any case, be sure you are investing at the right time in order to maximize your returns.
TIME HORIZON –
One important factor to consider before investing is your proposed time horizon.How long do you wish to invest for? Is it a long-term or short term investment? Knowing your specific time horizon will also aid you in choosing the right investment opportunity that matches your needs. Long term investments have been found to be favorable for those investing in shares.
EMERGENCY FUND –
In the earlier part of this article, we talked about how you should never consider investing with money that isn’t yours, especially if the money would incur interest rates. Even when investing with your own money, ensure that you set some emergency funds before investing. In other words, do not sink all your money in a single investment.
Now that you have read the top 5 factors to consider before investing, trust that the next month would be your start of attaining financial stability? Feel free to share your views with us, and don’t forget to like and share with your friends. Also expect our last article on the financial series and you will be glad you did.
Read More: How to save and invest.