Before making any investment decision, you should always be informed on what it is exactly that you are investing in. Join us this week as we go through the 10 key questions you should be asking yourself before any investment decisions:
On this podcast, we have always been proponents of goal setting. True to form, Host Andrew Baxter explains that when you are getting started you must ensure you know exactly what you are trying to achieve. You may surround yourself with people looking to achieve certain things and by virtue of being around them, you may be pushed into that activity. This however, is not necessarily ideal as you want to make sure you are engaging in activities that align with your goals and values and move towards a method that is suitable to you.
When it comes to the involvement of your money in your investment decisions, there are a couple you need to think about. Firstly, how much capital do you have to invest? And secondly – are you going to make regular contributions into that investment with your money? With regard to question one, Host Andrew Baxter notes that the first step is developing a budgeting and saving system so that you are able to accrue that lump of money to get started in whatever the investment might be. Different activities may require different amounts of capital for example the cost of buying some shares may be less than the sum needed for the deposit on an investment property. Likewise, question 2 is an important consideration as you may benefit from certain actions over the long term such as regular contributions to that investment, whether it be small or large increments along the way.
For endeavours beyond the scope of a normal job, investors typically want something that involves less work, not more. Host Andrew Baxter explains that this is why real estate appeals to a wide array of people in that you simply buy the property and wait and hopefully see the value increase. The time it takes for a particular investment class can vary quite a bit and considering the time you may have to spend to get the most out of it is a major determining factor as to whether or not you will undertake it. The time frame for investments to come to fruition is another consideration. How long are you willing to wait to see the result of your investment? Some are willing to accept more risk for faster potential returns.
Making sure an investment class is well-suited to you is also highly important. Host Andrew Baxter notes that the main skills questions to ask yourself before any investment decision is “what are my skills and values?” and “am I educated on this topic?”. Different asset classes require different skills and sometimes reflect different values. When it comes to the skill set, you need to be certain you are not jumping into something out of your depth and often it is necessary to get yourself educated on the topic. As we have covered in previous episodes, investing in yourself is very important.
Risk tolerance is different for everyone and similarly it varies across different asset classes. Before entering into any investment decisions, you need to consider what the risks of this particular investment are, and what your personal attitude towards risk is. If you can first figure out what your personal risk tolerance is, you will then be able to pick and choose investment options that fit in with your objectives and risk profile.