Factors to consider before InvestingEdited on September 8, 2017
To build up money needed for a long-term financial goal, you will need to put it where it has the potential to grow. Long-term goals can range from saving for your dream home or your child’s education, retirement, business startup, or maybe you just have an extra monthly income that you want to invest so you can achieve financial freedom in future.
Before investing, you should first consider these factors that will determine when, where, and how to invest. Investing is not just about putting your money into an account and waiting for it to grow. Think about different factors that will affect your investment, such as:
Is your money going to earn enough interest to help you achieve your goals? Is your investment account the best choice in terms of interest earnings or are there better options?
Consider the right time to invest, and the best period of time to invest in order to achieve your investment goals. For example, if you have a debt, will it make more sense to invest the money you have and pay off the debt after you’ve gained interest on the money, or is the debt urgent? Secondly, do you need a short-term or long-term investment to achieve your goals? In which case, if your goals are immediate and short-term in nature, make sure that you place this money in an investment avenue that can easily be converted into cash and that you are not putting your money at high risk; for instance, a Fixed Deposit Account.
How old are you? Investing when you’re young has its own perks, because it allows you to wait a longer time for your investment to bear fruit. Starting to invest early has the advantage of compound interest. Compound interest is earning interest on your interest as well as principal, and this makes your money grow more over time.
Why are you investing your money? Is your goal to save up for something big? In which case, you will need to evaluate the rate of growth availed on the investment instrument. Therefore, if you have a short-term objective, investing in less risky instruments makes sense. Investments such as bonds and other money market investments are suitable here.
On the other hand, if your financial goal is long-term and you can afford to take risks with your investment for higher returns, consider mixing up your investments. If you have time to invest, take time to dabble in different investments; for instance, let your investment manager diversify your investment portfolio, giving your investment a chance to earn higher returns.
Who is going to manage your investment? If you’re going to invest, you will need to choose a financial advisor who will best understand your investment needs and objectives. Another factor to consider is the track record of the investment manager.
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