New investors have a lot to learn. The world of investment is vast and diverse. It has opportunities tailor-made for every type of investor. The scope of it all can be overwhelming. But by simply understanding your own goals, you make the job of choosing good investments much easier. There are 5 simple questions to ask yourself before embarking into early investments. You should also re-evaluate these answers as you go along. As you and your portfolio grow, your plans will change. By understanding your evolving needs as an investor, you will set yourself up for success for the rest of your life.
Infographic source: La Capitale
How Much Risk Can You Handle?
This is a fundamental question that every investor has to ask. It will determine your stock to bonds ratio, your retirement plans, and how well you sleep at night. Of course, the more you put on the line, the more you stand to win. It’s how professional gamblers can make $100,000 in a night. Of course, they can also lose much more. By properly allocating your resources to give yourself a level of risk that you can handle, without anxiety, you know that your investments are probably in the right places.
What is Your Age?
Age and risk are intimately connected in the investment world. If you are young, you will probably live long enough to recover from occasional losses. So you’ll accept more risk than an older investor who won’t live long enough to recoup sudden losses. Of course, some older investors have the experience to take on strategic risk, and some younger investors will be very conservative.
What Are Your Investment Goals?
Do you want to be rich or simply comfortable? When do you want to experience the payoff of your investment? Do you want to leave money to your children? These and many other factors will change the way you invest. No two investors are alike, because no two lives are alike. Take a good look at your situation before making any big financial decisions like the ones we’re talking about.
What are Your Finances Like Now?
When we invest, it’s easy to focus on where we’ll be, forgetting where we are. It is important to both maximize your income (within personal limits) and budget well so as to make the most of your investment contributions. If your financial situation is too small an engine to drive your investment goals, you’ll never make it, or you should adjust your goals.
How Long Should You Keep These Investments?
This has a lot to do with other questions, like your age and your goals. Many investors take on investments for the long haul – years and decades. Some even pass on accounts to children and grandchildren. Still other investors trade on a daily basis. They know how to maneuver the twists and turns of their chosen market to negotiate substantive returns in a short period of time. Nearly all investors will choose at least some investments to hold for years, but the long-term holdings portion of every individual will be very different.
Investment is a complex field. It takes a lot of learning to begin well, and the education never stops. But don’t let this overwhelm you, if you are new to investing. By taking a careful look at your situation and your goals, you can make good investment decisions that will pay off for many years to come.