It doesn’t take a fortune to make a fortune – and it doesn’t take much money to invest and watch that money grow into a fortune.
Now by “fortune,” don’t start thinking investment goals are only for the wealthy. Investing is a valuable step to take at any age, and with any amount of starting funds. Investing is, after all, an investment in yourself, your family and your future.
But how does a person with little to no investment knowledge, or even one with some understanding of the markets, become a smarter investor?
By reading on for these 8 key questions to ask yourself, direct from your local Perth investment advisers.
1. WHY AM I INVESTING?
Like many things, investing requires setting goals. Every person has different needs, and therefore everyone will have different goals.
A good investor will determine short, medium and long-term investment goals.
Here are some examples:
- Putting money aside for a vacation may be a short-term goal;
- Saving for a new home or a vacation property may be a medium-term goal;
- Setting aside funds for retirement may be a long-term goal.
Life often throws unexpected events at you as well, such as unplanned home maintenance expenses or loss of employment. Building an investment plan can help you and your family weather such difficult times, if they arise.
Ask yourself: “What am I trying to accomplish?” and that will help determine if an investment will help you achieve it.
2. WHEN SHOULD I INVEST?
There’s no time like the present. If you’re just starting out in the work world, every little amount that you can invest will only help you over time. The earlier you start investing, the greater the impact of compound returns, which is when the money you make on investments is then invested.
Think of a snowball – the earlier you start rolling, the bigger it will grow. If you add your investment returns to the snowball, it gets even bigger.
But that doesn’t mean investment is only for young people. Investment goals can be established at any time, and investments can be made at any age or any stage in your working life.
3. HOW MUCH SHOULD I INVEST?
People often think they need a big bank account before they begin investing, but that isn’t the case. Investing can start small, as little as $50 as month.
The key is to make it a habit, by putting money aside regularly. That could become a routine by having the money deducted the day you get paid, for instance, before it gets spent.
By setting aside even a little bit each month, you’ll be in a better financial situation in the future, and able to achieve those investment goals.
4. WHAT’S MY RISK TOLERANCE?
This is particularly important and tied to both your investing goals (Question 1) and your timeline for achieving those goals (Question 5).
You must determine your appetite for risk vs. desire for return.
For instance, if you have 25 years before you will retire and need the funds, your risk tolerance may be higher, because you won’t need the money right away. You can take a chance on making risky investments with the possibility for greater returns. If there’s a dip in your investments, you have time to recover.
As you get closer to the time you will need to access the money, your risk tolerance should decline. Invest in more secure options that perhaps won’t have as great a return. Because you need the money soon, you don’t want the risk of a drop in funds that can come with more volatile, and therefore riskier investments.
5. WHAT’S MY TIMELINE FOR INVESTING?
This is tied to your goals and your risk appetite. The longer the time before you need the money, the more risk you can accept in your investment portfolio.
As well, if you have a longer timeframe for investing, you can choose investments that are less liquid, perhaps like property. If you will need the money soon, or there’s a chance you’ll need to access it even sooner than you think, more liquid (easier to access) investments are a better bet.
6. WHAT CAN I INVEST IN?
For instance, in the Investment Portfolio Management services offered by us here at Financial Framework, just a few of the options available to you might include:
- Australian Equities
- Bonds
- Global Equities
- Property and Infrastructure
- Alternative Investments
7. IS MY INVESTMENT LICENSED?
Ensure you’re working with people and businesses that are licensed. After all, you don’t want to take a chance with your hard-earned money.
There are obviously risks to investing, such as not making an immediate profit. But you shouldn’t take the chance of losing your money to a fraudulent investor or a flimsy money making scheme.
8. SHOULD I BE MANAGING MY OWN INVESTMENTS?
As you can see, there’s a lot to consider before even starting out with your investment plan. It’s difficult to then manage the investments along with your many other responsibilities, like your own full-time job!
It might be best to engage an expert in investing by finding a qualified financial adviser.
If you are seeking an Investment Adviser in Perth, you can consider the expertise of Financial Framework.
