Five things to consider before making an investment
Investments aren’t for everyone, and it’s crucial to make sure you don’t jump in with both feet and end up with something unsuitable. Taking stock of a few key factors will help ensure that you don’t later regret an investment you’ve made.
1. Think about your current financial situation
It’s best to sit down and do a full financial review before even looking at the types of investment available. It might sound a bit dull, but having a clear view of your personal finances will offer you much more peace of mind in the long-run. How much are you earning now? Will that change in the near future? Do you have any savings, and how are they performing? What debt do you have, and at what interest rates? Do you own or rent? If you have a mortgage, what type of mortgage product is it? These types of questions will help inform you about what type of investments you could and should consider.
2. Think about your own personal strengths and weaknesses
A bit of soul-searching about the type of person you are can also help you meet your investment goals. If you’re a ‘hands-off’ kind of person, then do you really want to manage your own portfolio? If you get easily stressed or anxious about money, you might want a second pair of eyes on your investments. Do you enjoy getting into the nitty-gritty of facts and figures or does fine detail bore you to tears? Now is the time to think about if you want to do your own investing, or get a helping hand.
3. Start to consider your risk profile
Remember we mentioned risk in the introduction? Well now is the time to get to the bottom of how you feel about it. If the idea of risk scares you silly, then you need to be upfront about that. Perhaps your investment aims require a particular level of risk to achieve the returns you are looking for? With investments, there is no such thing as a ‘sure-fire’ winner so you’ll need to be comfortable with the risk your investments carry and what might happen if their value goes down, not up.
4. The term of your investment
In common with most financial products, like loans, mortgages and life insurance, investments have a planned term. That’s not to say the term can’t be changed during the life of the investment, but it will form a large part of your overall plan. Short-term investments can be easily converted to cash (or yield their return) in less than three years. Examples of short-term investments are high-yield savings accounts, short-term bonds, and money market accounts. Longer-term investments are those over 3 years and include stocks, shares, property and pensions.
5. The ethical considerations that are important to you
We’ll look at ethical investments in more detail later on, but now is the time to think about your ethical position when it comes to investments. Perhaps you have religious beliefs or a cause you feel particularly strongly about. If your investments conflict with these personal ethics, then you might be left wishing you’d planned differently. If you work hard to lower your own carbon footprint, but then find one of your investments is in the oil and gas industry, how would that make you feel?