Investments are great tools for growing and accumulating your
money. However, it is important to keep some basic things in mind before making
investment decisions because of the risks investments generally carry for your
money. Here are 4 important
things to consider before making an investment.
The Time to make the Investment
This is one of the most important things you should consider
before investing. You need to consider if it is indeed the right time for you
to invest. There is no hard of fast rule to this but it basically just involves
you being observant enough to know the right time to make your investment. You
can as well consult a financial advisor for this, and you can also employ
your sense of good judgement in making the decision on the right time to
invest.
Where to Make the Investment
Many times your objective for investing will determine where you
will invest. If your objective for investing is to keep your money relatively
safe because you will need it soon, then investing in less risky instruments
like bonds will make more sense for you. On the other hand, if the objective of
your investment is to take aggressive risks to make higher gains, then you can
of course invest in high risk instruments like stocks etc. However, if your
objective for investing is to take some moderate risk with your money for
better appreciation, you can consider investing in real estate or in a mix of
stocks of very stable companies that pays out dividends (income).
The Time Before You Need the Money
Not everyone invests for retirement, some investments have
shorter goals. This will therefore influence where you are going to make your
investment. Typically, the longer you can stay invested the more you can take
risks and hopefully make more gain, since you can still recover from potential
losses. However, if you do not have a lot of time to stay invested, taking a
loss might be more disastrous to you, it is thus best to make less risky
investments or invest in less risks instruments.
Tolerance for Risk
This is another very important factor you should consider before
making an investment. The general rule is the higher the risk of an investment,
the more potential there is for higher return. However, not everyone can
tolerate risk or take risks with their money over a certain level. You need to
understand your threshold for risk and the level to which you can take risks
with your money before making any kind of investment. This is to avoid the
adverse of effects of risk taking on your life and health. It is thus best to
invest within your level of risk tolerance.
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