Any smart person who wants to make more money will look into making investments. If there’s one thing for certain, it’s that investing your money in various ways is much smarter than simply putting it into savings.
Investing will make your money grow much faster than a savings account will – especially since interest rates have remained stagnant for quite some time now. Bear in mind that inflation will have an affect on the money you save, meaning that it will be worth much less in the future. Putting your money into the right investments ensures that your money retains it’s value or grows in value.
Here are 10 crucial things you should be considering before you invest:
1. The Best Use Of Your Money
The first thing you need to consider is whether investing is the best use of your money. Of course it is at some point, but right now, you may have other priorities. For example, paying off debts first and foremost is crucial. The longer you’re in debt, the more interest you pay. Paying off your debts ASAP will ensure you have more money freed up for investing in the future.
Health insurance is also a good shout. You never know what the future could hold, and this way, you’ll have peace of mind even though you’re not plowing every cent you have into a savings account.
That being said, you should have a cash cushion of at least 6 months expenses. You never know what could be around the corner. Consider every eventuality. May you need to take a pay cut? Could you lose your job if the company goes bankrupt? Lots of things can happen, so being prepared for them is a must. Just make sure you have your money in an easy access account!
Once you have these things, you can confidently begin investing your money!
2. Goals For Investing
You should know your goals for investing, as this will determine where you put your money. If you’re on the verge of retirement, safer investments are best for you. Bonds are fairly safe so look into those.
You can afford to take a moderate risk if you won’t need the money too soon. In this case, stable companies that pay out dividends are a good option. You can maybe take aggressive risks for higher gains – best for keeping your money in investments for quite some time. Look into companies that are focused on growth and investing money back into the business.
You can even potentially start investing for two different goals. For example, investing for a house downpayment which is short term, and investing to retire which is long term. Having goals like this will make you more financially secure and smart both now and in the future.
Know exactly what the goal of your investing is so you can make the right choices!
3. How Old You Are
Being young has its advantages when it comes to investing, but don’t panic if you’re older. It’s never too late to start, you may just need to alter what you’re doing a little to make it work.
When you’re young, you tend to be more secure, have less responsibilities, and have more disposable income. It’s also easier to pick yourself back up and brush yourself off after making a mistake. In your 20s especially, your biggest asset is time. Make the most of it when you’re young by making riskier investments and taking advantage of the fact you have more time for compound interest.
4. The Time Before You Need The Money
Some investments will have shorter goals, some won’t. Bear in mind that some investments come with charges if surrendered or redeemed before a holding period is up.
We mentioned it earlier, but the sooner you need the money, the less risky your investments should be!
5. Your Risk Tolerance
Not everyone can take risks with their money past a certain level. You may worry as you have responsibilities and dependents, or it can be something simple. The ups and downs of the stock market can make some people uncomfortable.
A higher return may not be worth the stress or losing sleep over, so bear that in mind. Consider your personality and what you expect you can handle in terms of investment risks. Bear in mind that you don’t have to navigate this minefield alone. There are financial planners, wealth advisers, and robo-advisers to guide you through the process.
6. A Diversified Investment Portfolio
A diversified investment portfolio is recommended for anybody and everybody who wants to invest. You can invest in many things, including:
- Different companies
- Industry sectors
- Markets
- Asset classes
Having all of your money in stocks can’t be considered a diverse portfolio. Having diversity in your portfolio can help protect you from market fluctuations. The more powerful your portfolio will be if you take the time do this, and the more smoothly things will run for you.
7. How Involved You Want To Be In Your Investments
You can be as involved as you like when it comes to your investments. You can work on them everyday, or take a backseat and let a dedicated professional do this for you. If you don’t have the time, you can delegate portfolio management to a financial advisor. You could even hire a property manager if you’ve invested your money in property. There’s barely any need for you to be involved at all, but it’s totally your preference.
8. Is There An Expert You Can Speak To?
If you’re totally confused, there are places you can find experts. There are dedicated people out there that can advise you, and networking on LinkedIn could even be an option. By doing this, you might just come up with questions you didn’t even realize that you should be asking.
Look for a professional investor or an investment banker and see what you can find out.
9. Do You Understand Growth?
To understand growth, an investor has to dig into the key financial statements. The things like balance sheets, income statements, and cash-flow statements. In the consumer sector you can ask for retail level sales too. Understanding growth is key to ensuring you’re putting your money into the right investments.
10. Knowing Your Exit Strategy
Above all else, you need to know exit scenarios for the industry that interests you. Having an exit strategy is crucial if you want to avoid potential disasters. You can take different things into account, such as how big the company is and the margins. Whatever you do, make sure you develop an exit strategy that suits you and makes you feel comfortable.
Now you’ve considered these 10 crucial things, you should have a good idea of what step to take next. Do you need to pay off your debts, save up a cash cushion, or find an expert to guide you? It can all seem complicated at first, but you don’t need to be an expert or even a business person to invest. Everybody should invest, as it can be a very smart way to use your money.
If you don’t think you have the cash to invest right now, take a good look at your budget and spending. Chances are, you’re buying many luxuries that can be cut back and better spent on your investments. If you’re going to experience investment success, you need to get serious about it.
Do you have any tips and thoughts on investing? Leave them below!
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