Making an investment can be a daunting task especially if you do not have enough experience in investments. However, even if you have enough experience in this field it is always good to make wise decision on the kind of investment you want to undertake. Before parting with your money there are some questions that you need to ask before taking the action to invest. Below are 5 questions every investor should ask before parting with money.
1. Why do you want to invest?
Every investor has the main goal of making money grow when investing. However, this reason is not enough for you to part with your money. It is important to have specific objectives why you want to spend your hard earned money. For example, you need to ask yourself if you want to earn extra money, save for retirement or other reasons. In case you have several objectives list them down and assign their necessity to you.
2. How much are you willing to invest?
This question will help you determine your budget. It is important to know the amount of money you have in order to have a better perspective on the available investment opportunities you can afford. Determine whether you will roll over your returns meaning that the income received will be reinvested back to your investment. The question will also help stay within the limit of the money you are ready to spend.
3. How risky is your investment?
It is always good to note that investments might take time before returning income. It is also worth noting that various assets increase and decrease in value at different rates. Understand the goals you have in investing in order to understand the level of risk you can take. Bear in mind that long term investment give low to moderate return for less risk investment. On the other hand, short term investments have high risk of losing your money but have high yield.
4. How much time will you commit to your investment?
One of the big mistakes that many investors especially beginners make is to think that they will just sit down and see their money grow. It is good to understand that you need to invest your time in order to succeed in your investment. Therefore, before parting with your money for investment ask yourself if you have that time required for the investment of your choice. Note that active participation is key to gaining income in your investment. If you do not have enough time, better not invest to reduce losing your money.
5. Do you have emergency funds?
As mentioned above, investment is a risk where you can gain or lose money. It is, therefore important to ask yourself if you have extra funds that you can put into the business if you lose some of your investment. It is advisable to have some emergency funds to cater for such situations that are common in business investments.
By asking yourself the five questions, you stand a high chance of succeeding in your investments. The questions will act as a guide towards making a wise decision and avoid making investment mistakes that can be costly. Do not rush to answer the question; instead take your time to have the most effective answers to the questions.