When it comes to making a financial investment, it is something that you definitely want to put some thought into. There are two things that people care very much about, their children and their money. In today’s world of investing and with a frantic world economy, there is even more reason that one should do the proper due diligence prior to making an investment. We have put together a list of 5 questions you can ask yourself prior to parting ways with your hard earned money in hopes of returning more.
WHAT IS YOUR PRIMARY GOAL?
The very first question that you should ask yourself prior to investing your money, is what is my main goal? You could be investing for retirement, college for your kids, a house, a car, or perhaps you have some extra cash and looking for a fairly quick return. Whatever the case may be, your investment objective should be clearly defined so that you can find a suitable investment.
WHEN WILL YOU NEED THE MONEY?
Before making a financial investment, you definitely need to know when you will have to access those funds. This is important because you wouldn’t want to tie up your money for a long period of time if there is a chance that you may need the money sooner rather than later. If you are investing for the long term and your investment fluctuates or happens to go down in value, you can rest easy knowing that will not need those funds in the near future.
Related: 10 Questions to Ask Your Financial Advisor
HOW COMFORTABLE ARE YOU WITH THE RISK?
This question is one that often gets overlooked; and if you are working with a financial planner, this should be one of the first things that they discuss with you. Most credible companies have questionnaires available that help you identify your risk tolerance. Most people are either extremely conservative, aggressive, or somewhere in between. Answering the first question in regards to your investment objective, can also help you assess your risk. If you find yourself having trouble sleeping at night because your investment took a negative dip, this may be a sign that you are more on the conservative end.
Related: Things to Consider before Making an Investment Decision
WHAT IS THE AMOUNT OF MONEY YOU CAN AFFORD TO RISK?
The next question to pose, is what amount of money are you comfortable investing. I might also add, that prior to investing, it would be wise to have at least 3-6 months of living expenses already saved up. Prior to making a financial investment, you should have clear picture of your finances so that you can make a smart decision in investing your dollars. Perhaps your comfortable with making a one time lump sum investment, or you may prefer to invest an allocated amount each month. Either way, make sure you find a situation that you are comfortable with.
WHAT IS YOUR EXIT STRATEGY?
Lastly, in making any financial investment, you need to have an exit strategy. If you’re investing in stocks and you bought the stock at $20 per share, you may have decided to get out once it hits $40 per share, or when the stock hits $15 per share and you decide to cut your losses. If you’re primary goal in investing was for retirement and you wanted to have $2,000,000 in your account, once you hit that mark you can exit. Once you decide on your exit strategy do your best to stick to it.
Investing is a great way to build up your assets, and if done smartly, it can turn into another way to generate income. The best way to earn money, is to have your money do the heavy lifting and work for you. Remember to do your research and ask yourself the necessary questions prior to making a financial investment.
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