Things to consider before investing

Thinking about investing? Whilst investing can be advantageous to your financial future, it’s important that you have a clear understanding of your financial goals, the risks associated with investing, and your current situation before diving into it headfirst.

Here are some questions that could potentially help you in deciding whether or not now is the right time for you to start investing (remember, be honest with yourself!):

Why am I investing?

Before investing, it’s important to first establish your “why”. Whilst the generic answer and first thing that probably comes to mind is “to have more money” or “to build wealth”, having a clear goal will help you to form a better plan for your investment strategy. 

For example, if my goal was to save for retirement, I would look into investments with a steady rate of return over a long-term period. However, someone with the goal of investing to retire early may look for investments that offer a high rate of return in a short period of time. 

With every goal comes different strategies and approaches, therefore, it’s important to determine your goals first (and make sure they’re your own goals!).

What is my risk appetite?

By now it’s no secret that investing comes with risk. In fact, the risk element is one of the reasons which deter many people from investing. Before you invest, it’s important to establish your risk appetite which simply means how much money you are willing to lose, as there is no guaranteed return when investing.

Risk appetites are completely situational and vary from person to person depending on circumstances such as one’s age, income, amount of responsibility, and financial situation and goals. Therefore when determining your risk appetite, be honest with how much you can afford to invest and be comfortable with knowing that you may make a loss on your investment.

Are my finances in order?

Before investing, you want to make sure that other areas of your personal finances are in a good place. The aim of investing is to be in a better financial position, right? Therefore in most cases, it may be futile to invest your money if you are not financially fit to do so yet, as you don’t want to create even more financial strain on yourself.

You may want to take some of these factors into consideration first:

Do I have a stable income? 

If you currently have no stable source of income, you may want to consider holding fire on investing as you may risk losing it with the uncertainty of not knowing when you will receive income next.

Do I have an emergency fund? 

Having an emergency fund (3-6 months of living expenses saved) is critical to your financial health, no matter where you are in your journey. Your emergency fund should be completely separate from your investments and easy to access - you don’t want your money to be tied up or lost in investments when you need it the most.

If you don’t have an emergency fund, it may be a good starting point before investing so that you’re prepared for any unexpected events. For ideas on building your very own emergency fund, click here.

Do I have debt?

If you have debt, you may want to focus on eliminating as much of it as possible first - especially high-interest debt. The more you delay paying off your high-interest debt, the more it will cost you in the long run as the interest compounds. To learn more about debt, read our blog here.

Have I done my research?

By no means must you be an expert Wall Street stockbroker to invest, but having a foundational understanding is key, after all, it’s your hard-earned money we’re talking about! 

Before investing, ensure that you have done thorough research on the markets, what you plan to invest in, the brokerage account/s you will be using and the regulations and legislations that come with investing. You want to make sure that you understand exactly what you’re getting into in order to make the right, informed decisions for you, and are aware of any hidden charges you may have to pay such as account commission fees.

The bottom line

Whilst there certainly are advantages with investing early, it’s also something you shouldn’t rush into if you are not financially fit to do so. Be sure to have these honest conversations with yourself to find out if you are ready to invest and stay tuned on our blog as we will be covering more on all things investing!

The following is for general information and is not intended as a form of financial advice by Finndon or its representatives, nor the information intended to be relied upon by individuals in making any financial decisions.