As you will have probably realized by now, the decision to begin investing your money is not one to be taken lightly. Investments go hand-in-hand with risk, which means you could either grow your cash or lose some, or maybe even all of it. Therefore it is sensible to do plenty of research before you take the plunge.
Let us take a look at the activities you should undertake before making an investment, as well as how you would decide what to invest in.
Before you invest
Here are just a few things that you should take time to think about and plan before you even begin to consider the types of investment opportunities on offer:
- Sort out your debt – if you currently have debts, it is likely not the ideal time to involve yourself in the area of investments due to the level of risk associated with them. If you end up losing money from an investment, you may risk defaulting on your debt repayments, something which could cost you even more in the long run. Many advisers would say that it is best to pay off all of your debts before investing.
- Consider your retirement years – have you made a plan for retirement yet? Impartial financial advisers would likely tell you to contribute to an employee pension scheme or private pension before investing any spare cash. A state pension may not provide everything you need to maintain your current lifestyle.
- Have a back-up plan – do you have savings that are separate to the ones you would use for investment purposes? Due to the level of risk with investments, it is said that you should have three months’ worth of salary in savings before you invest. This should cover any unforeseen circumstances.
Deciding on an investment
Now let us examine what goes into the thought process when you are deciding what to invest in:
Thinking about financial goals – you will need to decide what your goals are when investing. Is it to provide an income? Do you want to have a certain amount by a certain time? If you speak to a financial adviser they will help you to figure out what types of investments could be suitable to achieve your goals.
Understanding risk – all investments have risk, but some are higher on the scale than others. You will need to research when it is the right time for investing in diamonds, and when it is best to back an energy firm.
It is worth noting that if you want to grow your money over a short time period, your only choice may be to choose a higher risk asset; but it is up to you to decide whether the risk is too much, and whether you should reconsider your goals.
How much to invest – finally, you should think about how much you actually want to invest. It is important to be realistic, and stay level headed so you don’t get in too deep. Investments require you to put your money in a certain place for a long length of time, so you shouldn’t need to access it like you would a current account at your bank; don’t put too much in if you can’t afford it.