6 Steps Every Smart Investor Takes Before Investing
There’s no doubt about it, deciding where to invest your hard earned cash is a big decision.
We know that creating an investment portfolio isn’t a simple task, but the process can be made easy with the right amount of planning and a little foresight. So where do you begin?
We’ve come up with a list of the key things you should consider before you invest:
Assess your current position
The first thing to do is assess your current position. What funds do you have available? How much can you invest without putting yourself in a risky financial position? What is your current cash flow and how much can you afford to set aside? Once you know how much you have to invest, you can start looking at potential investment opportunities.
Set your goals
There are many different reasons people choose to invest, but the most obvious reason is to ‘invest’ for the future. Whether it’s retirement, education for your children, or purchasing your dream home, you need to identify your long-term financial goals so you know when you need the investment to provide the funds.
Goal setting will give you direction, motivation and is an important part of any investment journey. Make your goals realistic and achievable, and regularly review the goals to make sure you are headed in the right direction.
Know your timeline
It’s easy to make emotionally fuelled decisions when you’re under time pressure. Avoid this, and plan at least 12 months in advance. Determine your liquidity needs and make well thought out decisions based on when you need the funds to meet your goals.
Assess your risks
There is always some kind of risk involved when investing money. It’s wise to assess the risks and ensure you are aware of the downsides of each investment. Conduct a risk assessment and ensure you are clear on all the risks involved, so you are ready for them when they rear their ugly heads. How comfortable you are you with the risks will depend on your personal circumstances.
Plan to diversify
When it comes to investing, many investors live by the saying, ‘don’t put all your eggs in the one basket’. The market experiences highs and lows, and every investment will perform differently in these changing conditions. Diversifying your investments will spread the risks across your entire portfolio and may balance the losses with the wins. There are so many different ways to invest money, and so many industries to consider, so it’s important to research all your options before making a decision.
Decide who will manage your investments
Decide how much input you want to have in your investments. It really comes down to how much time you have. Some people like to be extremely involved in the day-to-day happenings, others prefer to delegate the management of their investments to a financial advisor. Either way, make sure you have clarification from the beginning, so you’re clear on who’s looking after your hard earned cash.
If you’re ready to invest and would like to have chat with us about your options, call the Finance Detective team on (08) 9289 7777. We can guide you through the entire process and be by your side to support you along the way.