7 questions to ask before you invest
Once you know your asset mix, you can choose specific investments. Before you choose an investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition, understand how it works and the risks involved.
Ask yourself:
- How does the investment work? Do you understand the investment well enough to explain it to someone else?
- What are your goals? Are you looking for safety, income or growth from this investment? Or both growth and income?
- What are the risks of this investment? Are you comfortable taking these risks?
- How much do you expect to earn on this investment? Is this realistic?
- How long do you plan to investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition? Is this a short-, medium- or long-termTerm The period of time that a contract covers. Also, the period of time that an investment pays a set rate of interest.+ read full definition investment?
- What are the costs to buy, hold and sell the investment? And will you pay taxes on the money you earn?
- What other investments do you have already? How does this investment fit with your other investments? How will it change your asset mixAsset mix The percentage distribution of assets in a portfolio among the three major asset classes: cash and cash equivalents, fixed income and equities.+ read full definition?
Key point
6 steps to investing:
1. Set your goals
2. Know your investing personality
3. Create your plan
4. Choose your assetAsset Something of value that a company or an individual owns or controls. Examples: buildings, equipment, property, a car, investments, or cash. Can also include patents, trademarks and other forms of intellectual property.+ read full definition mix
5. Choose your investments
6. Track your progress
Caution
Never invest in something you don’t understand. Before you invest, make sure you understand it well enough to explain it to someone else.