Following the questions in Part 1, here are a few more questions you should ask yourself when thinking of investing.
What are my goals and timeline for investing?
Your investment time frame should provide clear guidance for deciding which investments to choose. Generally, investors have different goals at different stages during their life. The old saying ‘time is money’ sums up precisely why it is important to invest in the long term. Retrospectively, it is evident that investing with a long-term perspective pays off.
What level of risk am I comfortable with?
When developing your investment plan, you should identify and understand the potential risks. As a rule of thumb, if you are afraid of losing your capital, you should think twice before investing in risky assets.
There is a very basic investment principle that you should take note of – the higher the risk potentially leads to higher returns, whilst the lower the risk potentially results in lower returns. Spreading your funds across a spectrum of investments is one of the best ways to mitigate risk and protect against sudden falls in any particular market, sector, or individual investment. With a diversified portfolio of investments, returns from better performing investments can help offset those that under perform.
What are the different methods available for investing, and what are the related costs?
You should consider investing directly if you prefer to manage your own portfolio. Costs may vary depending on how you invest. Investing in collective investment schemes may incur additional costs, such as initial charges, exit fees, and annual management fees. You should also consider the broker’s fees whenever you invest directly in securities, such as equities or bonds.
Alternatively, a financial advisor can help you to build a portfolio that has a fit within your risk profile and return requirements. If you receive investment advice, you may also bear the cost of that advice or service.
As Warren Buffet said, “Investing is laying out money now to get more money back in the future.” You should think of investing as a marathon rather than a sprint, whilst looking to grow your wealth over time and not overnight.