9 Things to Consider Before Making Any Big Investment Decisions
While the basic habits around your personal finances based on budgeting, paying off your debt, and starting a savings account are important, the way that you can really make your money grow is by making some wise investments which pay off. However, you need to be wary before you take any decisions which you are going to impact your finances in a big way – particularly if you have never entered that particular marketplace before.
There are plenty of different areas in which you can channel your money including the stock market, property, businesses, and even more unusual investments like gold and classic cars. The first thing that you need to do is make sure that you have thoroughly researched the sector in which you are planning on investing. Say you are looking at properties. The internet is a useful tool in finding information on value for money HDB flats which may prove to be a sound investment in the future. After all, you don’t want to be left floundering around and unsure of what your next move should be. So, here are some of the main things to consider before making any big investment decisions.
Draw Your Financial Roadmap
To start with, you need to take an honest and serious look at your own financial situation and your ambitions for the future. This is doubly important if you have never made a financial plan in the past. Next up, you need to have a set of goals figured out. These may be quite generalised to start with before you head further down the path. You also need to check your own tolerance when it comes to taking risks. There are no guarantees when it comes to making investments of any kind, but you are much more likely to enjoy success if you understand the facts about investment and follow this up with a clear and coherent plan. The rewards for taking risk are the potential for a bigger financial gain, but you may not be comfortable putting your finances in such an unstable position.
Create and Maintain an Emergency Fund
Even if you are not making any big investment decisions in the near future, it is still a wise choice to channel some of your money into an emergency fund. Should things take an unexpected downturn, it is there as a safety net to give you time to get back on your feet. The minimum that you should have in this account is three months worth of living expenses – but it is worth upping this amount to six months if you want to put yourself in a particularly secure situation.
Pay Off High Interest Credit Card Debt
If you are weighing up your investment decisions while still carrying around a big amount of high interest credit card debt, now is the time to reevaluate your priorities. There are no investment strategies which pay off in quite the same way as clearing your credit card debt or any other high interest loans which you may have taken out in the past. Otherwise, this will continue to escalate, and you won’t be able to achieve the level of financial freedom which you are trying to attain.
Consider a Mix of Investments
‘Don’t put all your eggs in one basket’ is a decent adage to follow in the world of finances. If you only make a single investment and it fails, you have lost everything. However, if you invest in a number of areas at once, you have a greater chance of making a success of at least one of them. Not only may you be able to limit your losses, you may also be able to reduce the fluctuations of investment returns. Be careful about investing a lot of money in your employer’s stock or any other individual stock. If the stock takes a sudden downturn, you could find yourself losing everything. Of course, this doesn’t mean that you have to make a host of investments straight away. But, over time, you could consider this diversification approach to maximise your odds of success.
Do Your Reading and Research
There are plenty of resources out there which can help you out with your investments including articles, blogs, books, TV shows and podcasts. And thanks to the internet, a lot of these are available for free. It makes sense that you take in as much of this information as you can before making any major decisions. Not only can you find out what to do, you can also find out what not to do based on the mistakes that people have made in the past. However, when you are looking for source of information, go to the trustworthy and reliable areas based on reputation and personal recommendation if possible. There are a lot of people promising you the opportunity to get rich quick whom you need to be wary of.
Speak to the Experts
Reading and research will only take you so far as you don’t have the opportunity to speak to the experts directly. You could either speak to someone you know who has already had experience in making investments or hire a professional to give you the advice that you are looking for. Whichever option you take, you should make sure to take the chance to ask as many questions as come to mind. This is your opportunity to get clarification on any doubts which have nagged you, as well as the reassurances that you are seeking to ensure that you are comfortable with the decisions that you are making.
Adopt a Long-Term Perspective
You need to go into your venture with an attitude of acceptance that most investments are not going to pay off in the short-term. Adopting this long-term approach is one of the biggest challenges which many investors face, but it is an essential obstacle to overcome in your own mind. Large short-term profits are often dangled in front of new investors, but they rarely turn out to be what they seem. For example, if you invest in property, you are going to have to spend a long time paying off the mortgage and dealing with other maintenance costs before you start to see the regular benefit of the rent on a monthly basis.
If you are looking to invest in the stock market for the first time, you may well be tempted by the big brands. However, many of the best investments are not found in the household names, so stay open-minded. Smaller companies tend to have the opportunity to experience faster and greater growth. Of course, it can be tough to spot the great investment opportunities if you are not experienced, which is why it is so important to get yourself as closely involved in the world of stocks and shares, so that you can spot when an opportunity is arising. This doesn’t mean that you should accept every ‘hot tip’ that you hear about. When you decide to make an investment, you need to have the reasons very clearly defined in your mind as to why you are doing so. Make sure that you take the time needed to do your own research and analysis of the company. Otherwise, you are getting involved in a type of gambling which is based on someone else’s opinion and not your own wisdom.
Give Your Strategy the Time to Pay Off
Everyone has different investment goals and ways of achieving their aims. Remember that there are various ways of achieving success, and no single strategy is better than all the others. However, once you have determined a particular approach that you are going to take, it is important that you give it the opportunity to pay dividends. If you flip-flop around different approaches, you are more likely to get the worst of all worlds rather than the best. Sometimes, you need patience and a steady hand in order to turn yourself into a strong investor. Of course, one of the toughest aspects of investing is trying to make wise decisions based on events which have yet to happen. However, investing involves relying on future events in a big way – and you may find yourself to be a better psychic than you had initially thought!
There is no doubt that making investment decisions can be very daunting, but you are much better off being prepared rather than going in all guns blazing. Set your goals, pick your strategy, do your reading, and speak to the experts where possible. Don’t channel all of your cash into a single area, and be prepared to diversify where you need to. Stay open-minded and be willing to invest in companies which you may never have thought of getting involved in before – but make sure that you are doing so for your own reasons and not because someone else is giving you that next hot tip. Finally, be prepared to take a long-term approach rather than always thinking in short and quick gains.