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7 Key Questions Before Investing
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SEVEN IMPORTANT QUESTIONS TO ASK BEFORE INVESTING
Don’t invest your hard-earned money before asking yourself these vital questions.
BUDGET FOR INVESTMENT
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How much of my income should I be investing?
There is no “one size fits all” amount that defines how much of your budget should be invested. Financial experts claim that the desirable target is for your investment budget to be free of monthly or annual expenses. Prior to any investing decision it is vital to take an honest look at your financial situation and set a budget that you are willing to sacrifice in case the investment does not take the expected turn. Ask yourself: “Will I be financially devastated if this investment goes to zero?”. If the answer is yes, don’t make that investment.
GOALS
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What am I trying to accomplish?
This is maybe the most important question to consider before making any investment. Does this investment match your financial and sustainable/ethical investment goals? What sort of timeframe are you investing in? Are you planning your retirement pension, or a purchase based on a long term? Is your objective based on life events, such as your child’s education for a medium term? Or are you saving money for a rainy day, such as a job loss? Or a dream holiday on a shorter term? Once you have a clear objective then you may decide if the precise investment is appropriate to meet your goals. In order to set up your availability budget for any type of investment, begin by calculating your cost of living including essential spends like rent/mortgage, electricity, food taxes, childcare as well as non-essential spends, such as holidays and going out. Add up all expenditures and subtract them from your income to set your budget for investment.
RISK
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How much could I lose?
The first step to successful investing is to evaluate your risk tolerance. All investments involve some degree of risk. It is important to understand before you invest that when investing in investment products, you could lose some or all of your money. Decide if you are comfortable with the risk and investigate how to reduce this risk.
LICENSED PROVIDER
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Is the entity I am about to do business with authorized and regulated by CySEC?
If the firm is not authorized to provide investment services and activities by CySEC, then it is not allowed to provide them. An operating licence is only granted if the firm complies with specific requirements and standards which set out, among other things, how to treat investors and what sort of information they should give. Always access CySEC’s website directly and check if the entity is authorised before you proceed with a transaction. If you deal with an unauthorized entity, you will not have access to the services of the Financial Ombudsman or the Investor Compensation Fund, so you’re unlikely to get your money back if things go wrong. Check our guide “How to avoid Investment Scams”.
REWARD
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How has this product performed over time?
It is important to consider performance for future reference. Don’t rely solely on the words of the investment entity, but ask for historic data on past performance and the track record of the product. Do as much research as you can.
COST
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What are the costs to purchase, hold and sell this investment product?
Always pay attention to costs and charges. Ongoing costs are a drain to your investment. Understanding the costs is key to investing your money wisely. Investors must be presented from the beginning with all the appropriate information regarding costs and charges to make informed investment decisions. For instance, some products like stocks have charges. To avoid unpleasant surprises, you must always insist your investment advisor thoroughly explains the exact cost of any proposed investment. Watch out for inconsistencies between what is said by your investment advisor and what is written in the documentation provided. Make sure you read all documents carefully and never invest in anything you do not understand or seems too good to be true. It’s always wise strategy to “shop around” for investment options and compare benefits and costs.
TIMEFRAME (OR LIQUIDITY)
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How easy would it be to sell if I needed my money right away?
Liquid financial assets, such as bonds, stocks forex, may be easily and simply converted to cash. Investing in something illiquid, such as real estate, may require time and effort to trade or sell. You must always keep in mind the scenario of converting cash within a short period of time. Ask yourself “Does this investment make sense from a timing point of view?” and “What happens if I urgently need to cash out?”. Never commit to a long-term investment if you think that you will need early access to your money.
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