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16 Questions To Ask Before Investing In Anything

Simi August 13, 2020

Those who seek to achieve results in today’s rapidly accelerating society understand the need to take appropriate measures. You can only achieve your goals if you know what you need and want in life. Never before has there been more emphasis on healthy relationships and family togetherness as the necessary foundation. This will lead you to a life of life-long success.

Yet with time as our most precious and resources become limited, it has become increasingly difficult. It’s not easy for high achievers to balance the life’s work and social activities. And to make it worse there is little time in life to invest with the loved ones at home. There are so many people that have decided to pursue their financial goals at the expense of other activities.

With this in mind, it is easy to understand why today’s most successful individuals are doing things differently. People have taken more care and precaution when it comes to their work and personal lives. The lifestyles have become expensive to manage while the demands for social life have to be considered as well. Although it is a difficult choice to make, there have been few options to take.

Discerning people nowadays want more out of their lives. There is clearly a special focus when it comes to the selection process of getting jobs. They want to get the work that will give them high income. On the other hand, some people are recognizing the need of making some investments to achieve their financial goals. Here are some of the questions you will need to ask yourself before you invest.

1. Is the net worth enough to make an investment?

This is the first question you need to ask before making any investment decision. Net worth means everything that you have such as your home, car and any valuables that can be sold. It also includes the cash balances in your bank accounts subtract the debts. The debts include the mortgage, credit cards and car loan. Therefore, the net worth is the available amount of funds that you remain with after subtracting the debts from what you own.

When you get the available net worth, the main issue should be to see how you can increase this figure. The aim of making an investment is to increase what you already have. There are several ways your net worth can be increased such as reducing your expenditure or stop being wasteful. You can also improve your monthly income and one way is to make an investment.

Making an investment decision is a difficult decision that requires a careful consideration. Looking at what is reasoned to come up with net worth, you have to look if your debts are huge. A small balance after subtracting the debts from what you already own can be tricky. This will make your investment decision difficult. You don’t want to have a long-term investment but bail-out because of financial problems.

Investments are intended for long-term returns and concentrating on the bank balances are short-term focusing. You will need to look at the net worth which is a long-term perspective. If you are interested in improving your account balance, then it would be unwise to make any investment. The focus should always be on the net worth. Having dealt with the net worth issue, you will get further questions as below.

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2. What are your major life goals?

Most people have goals when desiring to make investments. If you don’t have a clear goal, it’s better not to go ahead with an investment. Lack of goals will prevent you from measuring the time frame for making an investment. You will not be able to assess the risk that you will be facing. This may result in your investment performing poorly on the market.

For instance, looking at the stock market, it can be inconsistent. There are various short-term risks which will be encountered. This is different when your investment is for a long-term. The stock market will stabilize and lean towards a reasonable figure on your annual return. What it means is that the stock market is fairly better when it’s a long-term investment. You can, therefore, realize a good return on your investment.

When thinking of making a short-term investment, look for other financial tools that will enable you to make a good return. The stock market will not be conducive to such investments. This is where it is important to have a time frame that will help you measure when to make an investment. If you are investing for a long-term, then the stock market provides a better opportunity.

Therefore, having personal goals will enable you to have a specific aim. You need to know why you are investing. Consider if you are intending to become financially stable. These will direct you to have a long-term aim. If you are intending to buy a car in a couple of years, the stock market is not a good idea. The money might be needed soon enough for you to buy the car.

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3. Do you understand how this works?

If you want to make an investment, it should be in something that you really know. Making an investment in something you don’t comprehend will make you lose your hard-earned funds. There are some investments which are difficult to understand and may require being done by professionals. Another downside of it is that most of the complex investments can be expensive. Furthermore, they tend to have lower returns.

Most financial advisers hard-sell their services and makes it complicated for you to clearly understand. They do this in order for you to pay the higher fees which they demand for managing your account. If you don’t understand the investment in few minutes time, then it’s not a good option. The goals that you have will assist you to have good some options for specific investments.

There some things that you need to be aware of before making an investment. If the person that is explaining it is not clear, it means there is something wrong. It can be that the individual doesn’t understand the investment itself. It can also be that person is hiding some crucial information. Find out the charge and commission involved and net returns on the costs. All these put together makes it difficult if not explained well to make an investment plan. If you can’t get what is being explained, leave it.

Making an investment will take you to some good moments and bad ones. Prepare to face situations when the market is not doing well. The market price of the shares can go high or low. The significant thing is to stick to your plans and goals. This is where having clear plans will strengthen your strategy to hold on to the investments. It’s normal to have markets that are volatile but they eventually stabilize. You don’t want to give up at the first signs of problems.

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4. Are you keeping everyone on board with your plans?

Investments are big decisions that will involve emotions. There will be times when it will give you sleepless nights thinking about this decision. The decision can determine your future and deserves to be given appropriate seriousness. It’s important to keep yourself relaxed when making such important big decisions. Therefore, prior to making the decision, assess yourself the status of your emotions.

When your emotions are high, consider to temporarily let go the investment idea. You can also choose to have a nice sleep and rest prior to your decision. This will enable your head to clear off. Should this not help you, try to forget making any investment altogether. Investments that are done because emotions are high tend to be bad ones. Worse still, you may make an investment which is not suitable for your plans.

If you are a married person, it will be better to share your thoughts with your spouse. The spouse should be briefed on all the investment plans. Look at the goals for investing and the reasons for making the investment plan. It is important to consider together as a couple, what you intend to achieve in the long-term or short-term. Discuss all the investment options and choose the one which makes sense.

It’s better to look at the accounts because this is where the investment funds will go to. It’s crucial to come to an agreement on your plans and see if both of your goals are the same. Depriving your spouse such information can lead to problems in the future. The good part is that when discussed as two individuals, it helps to make the right investment decision.

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5. How much does it cost?

Most people save some funds for future purchases. There are different types of investments that you can do. This depends on your goals and what you aim to accomplish in the short or long-term. Any investment will cost you some funds and make a proper decision on the type of investment you wish to take is important. In some cases, the type of particular investment will depend on the costs involved.

In other investments, you find that those that cost you less money are the ones that will give more returns. However, this should not be taken like it’s always the case because situations differ. The low-cost investments should not be regarded as the better ones. There are also several high-cost investments that give better returns. It’s a fact that every dollar you invest is the same that is used for funding. This means that the more money you invest, the better returns you will realize.

The cost will determine your future returns. Everyone wants to reduce the costs including the investment firms. When their costs are lower, they can charge you lower fees. Some of these companies have got good investment opportunities which in return give better bottom-lines. This is passed on to the investors who then get more returns. Therefore, the less an investment cost, the better the returns.

It is important to put an effort to reduce the cost of your investment. This will help you make good returns. This is the reason when you don’t understand a particular investment, avoid it. Some investments have hidden fees that will affect your returns. The investors that give you a clear picture of the investment should be trusted or not. The reason being that you can make an appropriate investment decision that is aligned with your goals.

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6. How does it fit into my overall plan?

When making an investment ensure that they fit well with short or long-term plans. It is important to get the right set of investments that will work well when they are together. There are some investment portfolios that don’t work well when they are together. When these are combined they will pull down your returns. Therefore, getting a good combination will enable you to achieve your goals.

For instance, if you have a number of investments in your investment plan, ensure that you know them very well. There will be some that will produce low returns over a long-term period. Some of them will make high returns on short-term. When those that produce higher returns are not doing well the others mitigate against those making loses. It’s very rare that you can find all the investments making loses. This is the reason you should see how the particular investment will fit into your overall plan.

There are ways in which your investment can be protected. Based on historical data, the stocks, bonds, and cash do not move in the same way at the same time. Therefore, if you invest in more than one category, you can reduce the risk of losing your money. What this means is that when one asset category is doing bad, you can mitigate the loses with the one that is doing better.

The asset allocation will determine whether you will meet your financial goals. You will need to consider to include reasonable risk in your portfolio so that you can earn a large amount of return. For instance, if your goal is to save for retirement, you will need to include at least some stock in your portfolio. This will ensure that you will get enough returns on your investment.

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7. How easily can you get out of this investment?

Investment decisions are tricky and you are bound to make some wrong ones along the way. It doesn’t matter how much preparations you had made there will be some decisions you will regret. There are some investments which are easy to get out but others can be a big problem. The challenging ones involve some fees or extra charges and in some cases you may even fail to sell them for a certain period.

It is important to find out before making an investment the conditions that are attached should you want to cash-out. It is normal that when the investment is easy to get out, the risks involved are less when getting in. You don’t want to find yourself failing to access your funds because of lock-in options that they have. Or even the investment company getting a big cut from your hard-earned funds.

There are some investments which can be trickier to get out. These include an investment in a taxable brokerage account. There are trading fees and taxes that have to be taken into account when you want to quit. The other investment that can give you a headache is the whole life insurance. It can take you years to get out and you are likely going to lose those funds. There are also fees and taxes that are involved.

Making changes to your investment strategy is normal but it shouldn’t be done frequently. The point is that you don’t want to feel like you have been imprisoned for the investment. You should always get it clear on the conditions of the investment prior to signing on the dotted lines. It is crucial to find out from the investment companies if it’s easier to get out. The costs that you have to pay in order to do that should also be explained.

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8. What is the expertise of the person recommending this investment?

Before getting the investment assess the person that is recommending that you should take it. Be in a position to get answers for yourself to some inquisitive questions. If it’s a friend, check if the individual has proper experience in dealing in such investments. Look if they have any financial interest that they will gain as a result of your decision. You will meet many people who will make investment recommendations but lack the expertise.

Having decided to make the investment, get yourself surrounded by people that will support you. It is significant that you get your mind focused on the net income you are going to make. A positive mindset that is surrounded by people of the same kind will get you attain your financial goals. You will get a positive influence and commitment. Although it will not easy in the beginning, you will eventually get used to it.

You should check your circle of friends and determine those that you associate with more often. Find out if these people are financially minded. Make sure they make good spending decisions. If you find that this circle of people does not make proper financial decisions then consider getting another group of friends. Their bad financial decisions may affect you in the long-run. An investment requires financial discipline and those that lack it can not make it.

Look for some gatherings that have people with a bias towards financial achievements. These gatherings can be found in most places or you can inquire from your friends for such groups. There is a chance that some of your friends are aware of such gatherings. When you get one, build a close network with some individuals. These people will support you achieve your financial goals.

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9. Am I in this for the long-term?

There are many opportunities to be found in the financial markets. The question which most investors have to answer is if they wanted to make a short or long-term investment. Choosing the type of investment depends on your goals and aims for deciding to invest in the first place. Some people want to invest so that they can make good returns and buy a car very soon. This is a type of investment that will require a short-term prospect.

If you are investing to benefit when you retire, it is a long-term prospect. Such types of investments require special financial markets such as the stock market. The investment in the stock market can take years before deciding to cash in. Although they are volatile, they tend to stabilize along the way. They incline towards around 7% at the year end. You will make a good return on your funds. Considering that it’s a long-term thing, it is a better choice.

One thing which can be challenging when you make your investment is the amount of information that you get. There is always new information that you will be receiving regarding the investment in the stock market. This kind of information can be persuasive and might affect your plans. There will always be various opinions regarding the future of the stock market. You may be tempted to change your plans and this could prove to be a bad idea. For example, you might be informed that a certain company’s shares have dropped and be tempted to buy its shares.

There will be some information coming as to which companies are doing better. All this information coming around could be tempting. You should be aware that most of the information could not be worth pursuing. The investors who stick with their plans succeed in the end by holding on to their investments for a long-term. They tend to ignore what is happening around them and put their faith on their long-term strategy.

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10. What is the possible downside?

It is a good idea to get to know what could happen if the investment was unsuccessful. The financial markets pose some risks just like in any other investments. When looking at the impact you could face if the investment went down, it is good to weigh your options. It is better to go with the investment that has a smaller downside impact. At the end of the day, you don’t want to lose all your money.

For instance, if you make an investment in one company and it goes bankrupt, you may lose all the money. What this means is that you need to spread your investment across a wider stock market. You can get stocks for two or more companies. If one company is not performing well or goes bankrupt you will have a fallback investment and save some money. There are always some risks in every investment.

Some risks are more than others. To reduce the risks of investing you need to diversify your investments. It’s a good idea to choose the right mix of investments within an asset category. This will help you decrease the level of risks and/or limit the losses. It will also assist you to control the fluctuations of investment returns without putting too much money. It’s better to gain a little than not.

The employer’s stock or individual stock will give you more risks. There is a higher risk in such type of investments and you need to invest carefully. Should the stock perform poorly, you will lose a substantial amount of your investment. You can even lose all your money if the company or an individual company goes bankrupt. In worse scenarios, it might even cost your job.

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11. Do you reduce your spending habits?

It is a good idea to look at your finances every month. An investment requires careful consideration of your income and what you spend it on. Check your income and what you are spending your money on. The money that remains is what can be used for starting an investment or investing more in your investment account. The idea is to get the money that you remain with bigger at the end of the month. The bigger the balance the more you can invest and reach your goals faster.

Reducing spending is not easy for many people. The problem is that you look at your short-term goals rather than the long-term. Most of the spending is done on minor things but cost a lot of money. They are things you can do without. However, if you can’t cut off your spending on the things that you can’t do without don’t do it. Look for other things. For instance, you can cut off those expensive meals that you regularly take and save some money.

There are other things which are bought on a spur of a moment without due consideration. They are easily forgotten once they are bought. When you go out for shopping you may toss into your shopping basket something that might interest. Although it was not in your budget, you end up paying for something that will be easily forgotten. You even have post-purchase depression because the item does not satisfy you. These are the things to be cut off.

Changing your lifestyle will help you reduce some of the spendings. For example, if you normally go out alone to do some shopping, decide to go with your spouse. By doing that you will be in a position to discuss if some of the purchases are worth it. Always remember that as a couple, your plans and goals should be the same. It will help you make enough savings for future investments.

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12. You Need to Establish a Cash Emergency Fund

Life has a way of taking you in a new direction when you least expect it. The best plans can be derailed and find yourself in a quandary. You could have one of the best investment plans but you should consider if you could lose your job. There are other circumstances such as even if you get sick. The most significant thing is to have an alternative plan to get some income for your daily needs. In any investment, you need to look at a wider perspective.

Most people have no alternative plans and end up using their credit cards. The problem with the credit cards is that once you run into such problems they may be canceled. This may put you into another problem because you have to pay off the debt that was accumulated through the credit card. Getting yourself a cash emergency fund is ideal. Having it will ensure that you know exactly where your financial standing is.

A cash emergency fund will help your financial plans and goals to remain on track in case something goes wrong. You can get an online savings account that is easily available. There are many banks that are providing such services. Get an automatic weekly transfer from your main checking account for reasonable amounts. These should not be excessive to affect your budget. As time goes, it will build up and get you into a comfortable zone.

Once you have a good amount of the online savings account, forget about the account. Leave it to accumulate enough cash for some time. In times when you really need some money, you can withdraw from it. These are the times like when you have lost your job, you can transfer some money into your checking account. The good part with the cash savings account is that if the funds get too much, you can take some and invest it.

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13. Do you understand your investment options?

Before making a decision on the investment choice, it’s advisable to look at the various options. The investment may sound good when you hear it but a better understanding will help you make strategic decisions. You don’t want to be in a position after making an investment you are unable to understand it. There are many other people who will invest and don’t know even if their investment is doing well.

The significant step prior to investing is making sense of the different options. You should know how to interpret those options. Knowing the basics of your investment like the stocks, real estate, and bonds will help you. You will know when it will be right to bail out or not. Therefore, ask yourself, do you know the differences between two or more investments? These skills will be required in your investment decisions.

If you are not sure about how your investment works, it will be the best idea to seek more information. There are several books that are available explaining on investments. It is important that before you make an investment you get such information. You can have plans and goals but if you lack these skills all your hard work can go to waste. These books will explain the investment options, how they work and will address your concerns.

There is another way in which you can understand your options. Get a financial adviser to manage your investment. This will ensure that your investment is in good hands. But you still need to make an effort to understand how your money is being handled. This is your hard-earned money and it’s your responsibility to take an initiative. You can not just fully trust someone with your money.

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14. Does your portfolio require re-balancing?

There will be times when you make an investment where you will need to look into your asset allocation mix. In certain cases, the mix may not be bringing the desired returns and will need to be re-balanced. This is when you take your portfolio back to where your asset allocation mix was. This helps to reduce over-reliance on one or two asset categories. It raises the risk levels and you will require getting your portfolio to more reasonable levels. Therefore, anticipate this before investing.

The standard investment plans are to buy stock when they are low and sell them when the price goes high. However, you will have to be careful with your decisions. For instance, it’s advisable to remove the funds on stocks which are doing well. Then you can buy those which are performing badly. In that way, you will be in a position to buy low and sell high. This is the way you can make good returns on your investment.

There are experts that recommend that you should re-balance your portfolio regularly. This can, for example, be done every six or twelve months. In this way, your re-balancing is based on the calendar. It is important to keep records of the time frames so that you should not miss out on these. The calendar is a better way as it acts as a reminder to your investments.

There are some experts who think that re-balancing should be done by looking at the weight of an asset class. This means that it should be done when the relative weight increases or decreases to more than a certain level. This level could have been marked already. In this way, the investment will let you know the particular time to re-balance. Either way will work to the benefit of your investment but should never be done frequently.

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15. Do you have a bank to handle the transfers?

Now that you want to make an investment, it will involve fund transfers. Do you have a particular bank to manage the online banking and automatic transfers without a problem? It’s assumed that you already have a bank account and have a good relationship with your bank. It is important to ensure that your investment funds are handled easily. You don’t want to be in a situation where it’s a nightmare dealing with your bank.

Most people take it for granted that it will be an easy thing working with your bank. It is vital that prior to investing, your bank is well prepared to make your funds transfer easier. There are many banks that have online banking services to enable automatic funds transfers. Find out if you can transfer your funds easily because time will be of the essence if you can do it faster.

If your bank does not have this facility, then you can get another bank that offers such services. With a highly competitive market in the banking industry, there is a greater chance that your bank has this service. Most banks have this service as it offers them a competitive advantage. Customers nowadays demand this service because it eases their transaction problems. You can transfer the funds to and from your checking account.

When you make an investment, it’s a must that you should do automatic transfers. It works well with the investment plan that you have. It makes things easier and you can check regularly on your account. This enables you to manage your investment and can do it online. An online banking is convenient and stress-free. You have a lot of other better things to do than being worried about your transactions issues.

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16. Can your needs and wants be managed?

Having a self-discipline requires a strong heart for what you really want and need. Prior to making an investment go through all what you require in your life. If you come up with a list, you will be able to eliminate most of the things that will not be wanted or needed. Compare your list with your partner and agree on what matters to both of you before investing.

Having a strong control over your desires will help you go through the investment life with an open mind. You will be assured that your wants and needs will not control you along the way. This is not to say that you will not meet the same challenges. It’s humane to require some things in your life such like buying gifts for your family or friends. But you should not be swayed by these.

When such particular times come you will have to make tough decisions. There are many things which can be delayed until such a time when you are capable to make the purchases. The most significant thing to know is that there should always be a well-thought-of plan. You don’t want to make an impulse buying decision. This can affect your investment plan.

Impulse buying decision is when you decide to buy an item which was not in your budget. If you have an investment, this is discouraged. The impulse control is one of the good characteristics that is sought with investment plans. If you have it, you will find it smooth-going as you can use the resources for investing. In the long-run, it will help you manage and withstand the situations when the market is unstable.

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