7 Questions to Ask Yourself Before Investing in Anything
Making more money from existing money can be pretty tempting. However, not every investment made is the right one. And not every investment will bear fruit. Investment is like a gamble. You do not know whether you will earn profit or bear loss unless you receive the results. Some people believe in short-term investments while others opt for long-term ones. However, one cannot compare his investment portfolio with others. Because everyone has different amounts of money available for investing. Apart from that, some people are risk-averse. So the appetite of an individual to take risks varies as well. A very popular avenue of investment among people is the stock market. All you need a good internet connection like Frontier Internet plan and ample amount of knowledge regarding the trading market. And you can be a successful trader.
But everyone is not good at trading. Here are some questions you should ask yourself before you invest your money.
What is My Risk Tolerance?
As mentioned before, everyone has a different level of risk tolerance. You are a better judge of yours. Do not compare yourself to others in this regard. Because the risk tolerance also depends on the funds available. If you are low on the funds, I don’t think you will be able to bear a heavy loss. Hence, limiting your risk tolerance. However, if you have ample funds available, you should take risks. But this does not imply that you start investing in things no sane person ever would. You have to be wise either way. There are investments for every level of risk out there. You just need to find the right one for yourself.
Do I have an Understanding of it?
It is important that you understand what you are about to invest in. Because your lack of understanding can be the major source of your losses. This is because people can easily fool you then. If a person who is explaining to you about the investment opportunity cannot explain it to you properly as well, it means that they lack knowledge regarding it too. Or there is definitely something about the investment that the person is trying to hide from you. Either of the scenarios is dangerous for you. Therefore, you should refrain from making such a skeptical investment.
How Much Does it Cost?
You are the investor and you need to decide if you have the available funds that a particular investment is asking of you. If not, then there is no good in even thinking about it. You will then have to look for alternative investment options available to you. As a general rule, the cheaper an investment is, the more likely it is to produce positive returns.
What is My Objective for Investing?
You need to set measurable, realistic and attainable goals when it comes to you making an investment decision. This will only help you to achieve your further goals faster. You need to ask yourself the sole purpose behind you making an investment. Is it a short-term thing or are you planning to continue this for years?
How Does this Investment Fit in with other Investments of Mine?
You should not make any investment decision in isolation. In case this is the first ever investment that you are making, then the scenario is definitely different. But if you have already invested money elsewhere as well, your new investment decision would be based upon that. You will have to consider if this new investment fits in with your old ones. You need to see if this new investment when combined with your already existing ones, will help you achieve your set goals or not. Always keep your ultimate goals in mind. And that will help you make good investment decisions.
How easily can I get Myself Out of this Investment?
You should also consider the ease with which you can get yourself out of an investment. Therefore, you should invest in easily cashable assets or liquid assets as they call it. Less liquid an investment, more difficult will it be for you to get out of it. Because you won’t have much buyers in the market who will purchase your asset from you. And this can act as a major issue.
What is the Possible Downside?
One thing that you should be very clear in your mind is the possible downside that the investment you are considering to make has. This will help you to better calculate the risk involved. This will also aid you in analyzing the loss that you are likely to bear in case things do not work out. That being said, this also holds true that no matter how much research you do on a particular investment, you still can’t be always sure of the outcome. Hence, making it a gamble.
But this should not stop you from making an investment. Because if it works out the way you expect it to, you can end up making a lot of money. You would have often received calls from people who encourage you to invest in a certain commodity or stock. Well, if you have access to services like Frontier Phone service, you can do that as well. You can operate from your home (saving you the cost of office space) and encourage people to make investments. Remember watching the Wolf of Wall Street? Well, using your brain wisely is also an investment.