In life, you’re likely to come across many different people when it comes to investing. Some invest with specific goals in mind, while others jump in simply because it’s the popular thing to do. But putting hard-earned money into investments is a big deal, and everyone should approach it thoughtfully and seriously.
It’s funny how, when it comes to investing, you can get tons of advice from different people about where exactly to put your money. But at the end of the day, an investment might just not pan out for you. And it’s not necessarily because those advice-givers are clueless – it’s just that investing is a personal thing. One size doesn’t fit all. That’s why having a good financial advisor by your side can be really helpful as they can tailor your investments to fit you. However, if you don’t have a financial advisor just yet, don’t worry.
Investing can be an overwhelming decision and you might just end up in a web of questions about a whole lot of things. But you know what they say – sometimes having a bunch of questions is actually a good thing, especially when it comes to playing it safe. That’s why in this article we will explore the 5 major questions that you should ask yourself before investing in 2023.
What is my investment goal?
Setting clear goals is the most important aspect of Investment planning. Before you invest your money anywhere, define your goals clearly. It is important to make sure that these goals are achievable and realistic. You see, setting goals is a little difficult because everyone has a plethora of different goals and aspirations. The trick is to sort through these aspirations, prioritize them, and then roll up your sleeves to make them happen!
These goals can span different timeframes, like short-term, mid-term, and long-term. A short-term goal could be planning a trip or buying a gadget, while a long-term one can be centered around retirement or owning a home. Each goal has its own time horizon and level of risk tolerance.
Remember Stephen R. Covey’s words: “Begin with the end in mind.” Figuring out what you want your financial future to look like helps you make smart choices about investing.
Moreover, setting goals can help you keep an eye on and cut down on your excessive spending habits. When you have a well-defined goal in mind, you naturally start being mindful about how you’re spending your money. And as you track your spending habits, you’ll likely start noticing places where you can cut back or optimize. By aligning your spending with your goals, you’re essentially giving yourself a better chance at achieving them.
How much money do I have to invest?
Understanding how much you can put into investments can have a few layers to it. First things first, it’s crucial to figure out your net worth. Net worth is basically the total value of everything you own – your assets like money saved up, valuable stuff like a car or home, gold, and what’s sitting in your bank accounts, as well as any investments you’ve made. Then you subtract the total of all the money you owe, like credit card balances, student loans, and your mortgage, to name a few. This gives you your financial standing.
The next step is to take a look at your risk appetite – how comfortable are you with the idea of potential losses? Instead of just focusing on how much money you’re able to invest, it’s equally important to think about how much money you could tolerate losing. Now, this isn’t about dwelling on worst-case scenarios, but more about making informed choices. It’s a way to know the amount of loss you could handle without putting your financial security on the line.
Once you’ve thought through all of this, make sure to keep aside some money for your essential needs, and then start investing according to yourself. Starting small is often wise. Begin with avenues like mutual funds, which offer diversification and professional management. Gradually, as your understanding grows, you can put your money into more complex investment options.
How long should I invest?
The length of your investment journey depends on your specific goals. If you’re aiming for short-term success, then you’d want to focus on investments that come with lower risks and highly liquid funds. On the flip side, if you’re looking at the long-term, your investments can thrive irrespective of market fluctuations. This is because long-term investments benefit from compounding. Your returns actually start generating their own returns, and this process can significantly boost your wealth over time. You need to choose the timeframe of your investment according to your life and financial goals.
Now, however long you decide to invest, you must also make sure to diversify your portfolio. Think of it as spreading your investment eggs across different baskets. By doing this, you’re not putting all your hopes into just one type of investment and reducing potential risks. When some investments are not performing their best, others might be thriving, which can help cushion the impact on your overall portfolio.
Do you have a cash emergency fund?
As life is full of uncertainties, we never know when an emergency could be around the corner. In these moments of distress, having an emergency fund can be a true lifesaver. Whether it’s a job loss or an urgent medical bill, it is always a better idea to rely on your own emergency fund rather than applying for loans or credit cards.
Emergency funds are low-risk and rewarding funds. It is considered wise to have a cash emergency fund equivalent to about 6 to 8 months’ worth of your regular expenses. These funds offer high liquidity, and you can get your hands on the money easily whenever needed. This ensures that you have a sufficient buffer to tide you over during a financial setback, without taking any loans or hastily liquidating your investments.
How do you need to monitor after investing?
Once you’ve invested, monitoring is essential. It’s a good call to stay informed about the sectors your investments are in and the industry norms they operate within. However, excess of anything can have negative outcomes. You should avoid micromanaging your portfolio out of fear of potential losses. Market fluctuations are very normal, but frequent checks may lead to impulsive decisions like pulling out from your investments altogether. Keep in mind that a well-structured portfolio is designed to withstand market fluctuations, and patience is key to better outcomes.
It is surprising, yet not uncommon, how many people set foot on their investment journey without a clear plan. While life is unpredictable, Investment planning enhances your chances of success. Investing is a personal journey and before you take the first step it’s important to address all these questions. You should have a clear purpose and understanding of your current assets and risk appetite. Moreover, you should maintain a cash emergency fund to weather unexpected storms without jeopardizing your investments. And when it comes to keeping tabs on your investments, avoid impulsive decisions.
This is where the importance of a financial advisor comes in. A good advisor curates a personalized plan and makes sure to guide you, especially in times of market volatility, preventing you from making hasty decisions!