5 Questions To Ask Before Investing

The one question we get asked the most is probably, “What should I invest in?” And while we’re tempted to share some hot tips, the truth is, there’s no universal answer. Instead, we usually say, “It depends.” Investing should always be looked at through your personal context. What might be a sound investment for your bestie might be totally inappropriate for you.

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So, if you’re considering dipping your toe into investing and wondering where to start, here are five important questions to ask yourself before putting any money on the line:

1. How Much Am I Willing to Lose? 

When confronted with an investment opportunity, most people wonder how much money they’ll make. However, a more important question might be, “How much am I willing to lose?” Knowing your personal threshold for loss will help you determine what kind of investment is right for you. Remember, loss aversion is a real psychological phenomenon where we fear losses more than we enjoy gains. So, make sure you're comfortable with the potential downsides before diving in.

2. What is My Investment Goal? 

What’s the purpose of this investment? Is it for retirement, your child’s college fund, or perhaps a dream vacation? Each goal likely has a different timeline, which can influence your investment choices. For long-term goals, you might be able to afford a more aggressive approach, while short-term goals may require more conservative options.

3. Begin with the End in Mind 

Stephen Covey’s advice to “Begin with the end in mind” applies perfectly to investing. Think about what circumstances would lead you to sell an investment. Setting clear rules for yourself—such as how long you plan to hold an investment or what level of loss is acceptable—can help prevent emotionally driven decisions during market volatility.

4. How Much Does it Cost? 

Understanding the costs associated with investing is crucial. Many brokers and investment companies have hidden fees or complicated structures. Make sure you’re aware of all the costs, including any management fees, trading fees, or opportunity costs, so you can make informed decisions.

5. Diversify 

Diversification is key to managing risk. Instead of putting all your eggs in one basket, spread your assets across different companies, sectors, and investment types. This way, if one investment doesn’t perform as expected, your overall portfolio is less likely to suffer significantly.

Conclusion 

If there were a one-size-fits-all solution that worked for every person in every situation, it would make investing a lot easier. But with a few thoughtful questions, you can simplify the process and make better decisions, no matter what surprises might come your way.

And that’s our two cents! We’d love to hear your story. Tell us about your first investment in the comments!

Thanks for reading!