Investing

5 Crucial Considerations Before Investing

Investing money is one of the most effective ways to build long-term wealth. This is becauseany savings that you hold in cash will generally lose value over time due to inflation, however investing can help to protect the value of your money. With that being said, investing requires a balance between being sensible and risk-taking to get right and be profitable- it’s not just about pure chance and luck so isn’t something you should dive into headfirst without thinking through.

It’s well known that financial investment can be hugely lucrative, with names like Warren Buffet, Bill Ackman, and Suze Orman springing to mind. But before you go dropping your hard-earned cash into some stock or currency, it’s vital you do an honest self-reflection and ask yourself if you’re truly ready to start becoming an investor” says Rob Colville.

Here are five crucial considerations to ponder over before making your first investment.

Evaluate your finances

First things first, consider where you’re at in your life financially. When it comes to investing, you need money to make money; if you don’t have any spare income to begin with then you won’t be able to take that first step. You might need to spend time saving, cutting back your spending and carefully budgeting initially to raise the cash needed to invest. Money that you plan on investing should be completely separate from the money you need to pay bills, eat and keep a roof over your head, so this is something to bear in mind. Unless you already have disposable income or money to spare, then you’ll need to generate this initial lump of cash to invest.

Come up with a plan

Making a plan can help you put into perspective your investment goals, and from there you can set out the ways you plan on achieving them. Breaking down anything in this way is sensible and investing money is no different, it gives you time to sit and work out where you plan on going with this and what you will do if various types of situations crop up. When you’re dealing with your hard earned money, emotions can often come into play and without a plan in place it’s easy for things to spiral if you start changing your investment strategy on a whim. When you hear news about markets plummeting or if you’re going through a period where your investments arent doing well, it’s very tempting to make rash decisions which can affect your long term outcomes. With a firm strategy in place, you’re much more likely to stick with your original plan as you’ll have considered it from all eventualities. When you make decisions based on short-term market fluctuations, it can negatively impact what you set out to achieve. When you’re considering your plan, it doesn’t hurt to start small and build up gradually as your funds allow.

Decide on the types of investments you will make

The next decision you’ll need to make is what types of investments you plan on making. For example, wil you divvy up your money across a variety of assets such as shares, cash and bonds, or will you invest in a single asset class, such as a residential property? It’s important to consider that the three major asset categories (stocks, bonds, and cash) havent historically moved up and down at the same time. So if one asset category’s investment return falls, if your money is spread across various types of investments you’ll be in a position to counteract your losses elsewhere.

Get professional advice

Professional advice can be worth its weight in gold. If you know you’re not an expert, dont be afraid to reach out and seek that help from someone that is. A professional adviser will be able to identify what’s missing from the plans and goals you’ve set, and help you to work out how your investments can achieve what you plan on doing.

Do your research

There’s no doubt about it, you need to know what’s going on in the market- both on a domestic and global scale. This includes everything from growth to unemployment rates, how interest rates and inflation is rising and falling and things like major political events. The current situation between Russia and Ukraine for example is having massive impacts on all kinds of markets so keeping one finger on the pulse is crucial. So spend time researching, reading and watching the news and stay up to date.

A post by Kidal D. (5422 Posts)

Kidal D. is author at LeraBlog. The author's views are entirely their own and may not reflect the views and opinions of LeraBlog staff.

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