Are you investment-ready?
Posted on 13th Nov 2017
There is a sea of information and a host of recommendations asking you to invest your hard-earned money all around you. The catch is to understand that the devil is in the details and so it is imperative for you to carefully assess your overall financial situation, how exactly any kind of investment works and the underlying risks therein. What can you do to ensure that you are investment-ready? Ask yourself the following questions to find out if you are prepared enough.
1. What are your financial goals?
Hearing others talk excitedly about how any investment worked wonders for them should not be reason enough for you to follow suit. On the other hand, you should be clear-headed about why is it that you want to invest in the first place? Is it for financial security, growth or both? It is important to stay focused on your goal and see if the investment has worked for you.
2. Do you have an appetite for risk?
There is underlying risk in every investment. However, few investments have greater risk than others. You should be comfortable enough with the risk that you are taking. Investments that promise higher return also involve a greater degree of risk thereby increasing your exposure to bigger losses. This risk-to-return trade-off can help you to distinguish bona fide opportunities from bogus ones.
3. Is your investment registered?
It is crucial to check whether your investment subscribes to a regulatory framework or not. Smart investors always do a background check. It promotes fairness and enables you to obtain information about a company's products and services. Thus, you can make informed choices and invest with more confidence.
4. Is your portfolio balanced?
It's always good and less-risky if your asset choices are diversified. Learn and follow a strategy to avoid putting all eggs in one basket. Work towards maintaining a well-balanced portfolio so that you can earn the maximum returns with the kind of risk that you are undertaking. Thus, by spreading your money around you can mitigate your losses.
5. How long do you plan to invest?
It is common to get tempted to invest by hearing some random investment tip, some future projections about a particular instrument or the direction of the market, some strategy with low risk and quick returns etc. Such arbitrary decisions aimed at short-term profits do not deliver most of the time. If you plan an investment it's best to stick to it for a longer timeframe so that you can rectify your mistakes if any and earn steady gains.
6. Are you prepared for losses?
Every investor once in a while makes certain bad investment decisions that one regrets due to which losses are inevitable. We all do. You should never invest more than you can afford to and face insolvency. You should ask yourself that when things go bad can you bounce back? If the answer is no, avoid such investments that might deplete your funds.
7. Should you seek professional help?
Most people have a hard time constantly monitoring their investments as compared to full-time investment professionals. If you are hard-pressed for time or struggling to manage your investments in a way that you should then it's time you sought expert help. It can prove extremely beneficial in managing your finances wisely.
