Achieving long-term goals involves an investment, which means placing your money in places where it can potentially earn more.
Although it carries some potential risks, investing helps your money grow and the rewards are worth the risk.
There are various investment markets that allows you accumulate wealth faster, however, every investment markets is quite risky and the returns are based entirely on market performance.
However if investing is done right, the income generated can go a long way in creating the wealth that helps you achieve your financial goals.
Investing is quite easy, although getting started presents a bit of a tough challenge for many people.
That said, here are some things to consider before making any investment decision:
- Investment Objectives
One of the most important things to consider before making an investment decision is your objective.
Why do you want to invest? What goals do you need to achieve? Are they short term or long-term goals? Aretheysolelytoensurerapidgrowthofmoney,caringlittleforrisk-aversion?On the other hand,areyouconcernedaboutthepreservationofyourcapitalandmakingsureitdoesn’tlosevalue?
The investment decisions you want to make are tied to these answers so, you need to identify what your objectives are first.
- Projections and policy
The next thing to consider is the market projections and policies.
You are going to invest in a market and every investment market has its own policies, hence, you need to identify these policies and ensure they align with what you want.
- Market liquidity
Another thing to consider before making an investment decision is the liquidity of the market you want to invest in.
Carry out variousresearches on the liquidity of the market and find out if it easy to sell off assets for cash?
- Consider diversifying your Investments
The rule of not risking everything on one endeavor is still valid till date. Hence, it is important to diversity your Investments by having a mix of various investments.
When you include various asset categories with investment returns that move up and down under different market conditions within a portfolio, you stand a chance of protecting your investment from significant losses.
Moreover, the returns of the three major asset categories- stocks, bonds, and cash do not move up and down at the same time.
This means that when you invest in more than one category, you’ll reduce the risk that you’ll lose money and your portfolio’s overall investment returns will have a smoother ride.
On the other hand, if one asset category’s investment return falls, you’ll be in a position to counteract your losses in that asset category with better investment returns in another asset category.
- The Company
You are obviously investing with a company, and it is unwise to just invest in any company without carrying out proper research about the company.
Find out everything about the company before you buy stocks or invest with them.
Carry out research on the CEO, the company’s management style, how they treat their employees and their previous record of accomplishment.
This will give you a clearer view of where to invest.
- Risk Tolerance
A rule of thumb for investing is to never invest what you can’t afford to lose.
Themoneyyouinvestinsecuritiestypicallyisnotfederallyinsured;thismeans that if somethingbadhappens, youarenotprotectedfromlosingyour money.
Thereisadegreeofriskinanyinvestment;however, understandinghowmuchriskyouarewillingtotakewillalsoguideyouinthedirectionofthebestinvestmentstrategy.
If you have a high-risk tolerance and you are willing to take on more risk, then you can invest in high-risk, high-reward assets.
On the other hand, if you have a low risk tolerance, you may have to balance risk and reward by strategically allocating assets.
- Volatility
The investment market is so volatile that an investor can be in profit and loss, both in a single day.
This means that investments fluctuate and this fluctuation in the market triggers investors to make hasty decisions.
However, that’s a wrong move to make because if you properly carry out your research, then you should trust whatever decision you make. Undoubtedly, there would be difficulties in your investment journey;however, your decisions shouldn’t be influenced by these fluctuations.
- Emergency fund
When making investment decisions, ensure you put enough money aside in a savings product to cover an emergency, like sudden unemployment. It’s unwise to invest all your money without having a backup plan.
If possible, ensure you have up to six months of your income in savings so that you know it will absolutely be there for you when you need it.
Whiletherearemanyotherthingstoconsiderbeforemakinganinvestmentdecision,thesefewpointswillgiveyouaholisticviewofwhatitisyouarereallygettingyourselfinvolvedwith.