5 Critical Factors to Consider Before Investing
Investing in the right investment instrument at the right time is vital. While I can’t preclude any individual from assuming responsibility for their own future, we believe that if you do choose to handle things yourself it’s best to be as informed as possible about what you’re up against and how to best maximize your chances of success both short- and long-term.
It isn’t always easy knowing where to start though or to line out exactly what you should or shouldn’t be doing, especially when a situation calls for a quick decision.
The fact remains that often these decisions are life-changing ones and it’s important to only make them after careful consideration! Knowing this, I have put together a ready reckoner that outlines 5 factors you need to consider before making any financial product investment.
1. Evaluating your Financial Situation
Keeping track of your budget is essential, especially in the beginning when you’re just starting to save up. If you are young, then this is a great opportunity for you to take advantage of by putting away more money than normal.
It’s equally important to educate yourself about financial management so that you can become comfortable with handling money in general. Reading financial books will help you reach this goal!
There are many great books about finances available – start off with “Rich Dad, Poor Dad- Robert Kiyosaki” to learn all about the importance of investing.
Making time each day to prioritize your time towards looking at investment opportunities can really take your business further in the long run. It also helps if you have a basic understanding of what certain financial terms mean in order to help in making decisions when it comes down to investments.
2. Determine your Risk Profile
The first thing you need to understand when investing is the risk-reward profile of various instruments. Your specific situation will determine what works for you, but it’s important to know your appetite for risk.
For example, not all investments are created equal. While some may have a higher return potential, they are also riskier than others, requiring greater levels of understanding if they are to realize any gains.
Keep in mind that not all investments are suitable or necessary just because your friends or family happen to be investing in them at certain times so do your due diligence especially when it comes down to what works best for you!
3. Set your Financial Goals
Set up a comprehensive financial plan, categorized by your time frame. When setting goals for your finances, be sure to consider the level of risk you are willing to take.
For example, if you are not willing to invest in stocks because they are too risky for your taste, but you still want to plan retirement, you can probably invest in tax-saving discounts like PPF or NSCs.
However, these kinds of tax-saving investments will take much more time than say if you were thinking of investing in direct mutual funds which require more of an initial investment up-front since it is geared quite heavily towards stocks rather than government securities which fall under the Public Provident Fund or National Savings Commission respectively.
So account for that time while setting your goal so you don’t get caught off guard when your money is just sitting there not doing anything!
4. Link your Financial Goals to Specific Investments
When it comes to making investments, you always need to keep your goal in mind. Long-term goals are an ideal one for investing because they give money the chance to work for you over time.
It doesn’t hurt to start small and build up gradually as your funds allow – just make sure that before you choose the type of investment that’s right for you, you take into consideration what you have invested in so far and how much more room there is to invest!
Sound stocks are worth their weight in gold after all so there really is no point making any moves without thinking it through or else you might find yourself tossing around too many different ideas at once instead of choosing one specific thing so there’s enough focus on that particular subject.
5. Review your Financial Portfolio Periodically
It is very important to check the performance of your investments every once in a while. You might think that checking frequently or doing it frequently makes sense but that’s not true at all.
Check either quarterly, every 6 months, or once a year – at any point in time, but make sure you do that at some point over a period of a year. This is necessary because sometimes priorities change and they may change frequently depending on what you’re trying to achieve overall.
Sometimes you’ll need to add new investments, switch up your existing ones which aren’t performing well or move some around, but regardless of why your portfolio needs to be reviewed from time to time, it will always require an experienced portfolio manager whose job is to make sure you’re getting the most out of everything!
Listen to More Podcast:-
- Stock Markets Pt 2 – Episode 25
- Stock Markets Pt 1 – Episode 24
- Equity Investments Made Easy – Episode 26
- Investment Opportunities with Real Estate – Episode 27
We hope you enjoyed this blog post on 5 critical factors to consider before investing. We know that making investment decisions is a serious matter and we also know that there are many factors to consider in the process. We encourage you to take the time to ask yourself these questions and we hope you find this information helpful in making your next investment decisions.