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Are you thinking of investing your hard-earned money but aren't sure where to start? Before investing, you want to ask several important questions if you're a first-timer.
From asset allocation to fees, we'll cover everything you need to know to make an informed decision about where to invest your money.
23 Questions to Ask Before Investing
Question 1: How Do the Risks Compare to the Rewards?
Before you invest your money, understand your investment's potential risks and rewards. Some investments are riskier than others, so make sure that you're aware of what could go wrong before adding any asset class to your portfolio.
Question 2: Do I Have a Clear Understanding of the Investment?
Make sure that before you invest any money, you have a clear understanding of how much your investment costs and whether or not it's worth the price tag.
Question 3: Do I Need an Investment Professional?
If you have a question about your investment, who should you turn to for help? Often reading articles like this one will help you take an active role in managing your investment.
Sometimes it is helpful to consult a professional. Remember, though, most individuals selling an investment have a commission on the line. Make sure you are receiving information from as unbiased a source as possible.
Question 4: What Is My Investment Goal?
Have a specific goal in mind. Are you looking for short-term or long-term gains? Do you want to generate income or build wealth over time? Knowing what you hope to achieve with your investment will help guide your portfolio.
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Question 5: What Is My Risk Tolerance?
Some are more comfortable with uncertainty and volatility than others. Typically, the younger you are, the more risk tolerance you should have.
Question 6: What Happens If My Investment Drops to Zero?
If your money disappeared overnight, would you be able to cover your living expenses? If not, consider holding off putting any money in the market until you are financially stable.
Question 7: What Is My Investment Time Frame?
Different investments have different time frames, so it's essential to choose one that aligns with your goals. Saving for a down payment on a home in the next three years means you may pass on crypto or stocks for the time being.
Question 8: When and Why Will I Sell Your Investment?
An investor always has an exit strategy. When and why will you sell? Best to know what must happen to prompt you to sell. When do you hit enough profit?
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Question 9: Am I Diversified?
By spreading your money into different products, you can reduce your risk and protect yourself from potential losses. Do not put all your eggs in one basket.
Question 10: Why Do I Still Own That Investment?
If one of your investments isn't performing the way you expected, ask yourself why you're still holding on to it. Dumping an investment that's losing money can help minimize your losses and free up cash for other opportunities.
Having optionality (cash) can prove invaluable during a market correction or downturn. You will find the best deals when the economy is crashing around you.
Question 11: Should I Be Managing My Investments?
Some people are perfectly content managing their investments, while others would instead leave the task to the professionals. Take an active role in your portfolio.
As the investor, you will take care of your money more efficiently than anyone else.
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Remember when you bought your first car and how clean you kept it?
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Question 12: How Much Are the Fees?
Understand all the associated fees before adding anything to your portfolio. Some common fees are management fees, trading fees, and commissions.
Question 13: What Is My Investment Strategy?
A strategy will help you stay focused and make informed decisions. Your strategy can be as simple or complex as you want. Some swear by EFTs or index funds, while others choose individual stocks.
Whichever route you choose, make a plan and stick with it.
Question 14: How Much Money Can I Afford to Lose?
You will lose money as an investor. You want to do your best to minimize these losses. Keeping a diversified investment portfolio will help with mitigating risk.
There is no risk-free investment out there.
Question 15: What Type of Investment Do I Want?
Do you want an aggressive, high-risk product or something more conservative? Do you want the ability to be liquid (sell quickly), or can you park the money for years?
Asset classes like real estate are expensive to buy and sell, and your money is tied up for some time.
Stocks, EFTs, and mutual funds can be bought and sold nearly instantaneously.
Question 16: When Is the Best Time for Me to Invest?
Financial education is your top priority. Do not buy on hype or because someone else said it’s profitable.
Understanding the fundamentals of any investment opportunity is the first step.
Question 17: What Will I Use This Investment For?
There are many questions to ask yourself to find the right asset for you. Do you want monthly income? Are you preparing for traditional retirement at 65? Different goals necessitate different actions.
Question 18: Am I Investing in the Right Company or Product?
Research extensively. Until you are comfortable with different asset classes and have the skills and ability to choose the suitable investment, keep on learning.
Question 19: What If I Need Cash Quickly?
Investing in an asset mix that is highly liquid would be in your best interest. Assets that can be bought and sold quickly give you the optionality to convert to cash if you find a stock that you believe will gain substantially.
Question 20: How Much Can I Afford to Invest?
Only use money that will not hurt you if you lose it. The honest answer to this question is as much as possible while still having food on the table. With inflation on the rise in the US and Europe, you cannot save your way to retirement as real interest rates are below 0%.
Question 21: Is the Investment Income Taxable?
Question 22: How Is The Investment Performing Compared to Others?
Will it make a profit or appreciate in value? Each item in your portfolio can make money sometimes, yet not everything at the same time. Diversifying helps so when one category is suffering, another is performing well.
Question 23: Can I Monitor Every Investment?
It's important to keep track of your investments so you can make sure they are performing as well as you’d like. Stocks and real estate allow you to do this yourself. Educate yourself on the profitability of your portfolio and how to calculate it.
Treat your investment portfolio as you would anything in your care. You can mitigate lots of risk when investing for the long term and not after short-term gains. Starting investing while you’re young gives you the ability to have a longer time horizon and watch your money grow.
Ask questions and keep learning so you can feel more confident about investing.
Remember, Rome was not built in one day.
As a certified credit counselor and syndicated writer at MaxMyMoney, Max has coached over 250 Millennials to help take the stress out of money. When Max is not coaching, you'll find him reading financial books, indoor cycling, or visiting local pawn shops looking for swiss-made watches.