Good day everyone! Are you thinking about investing? Have you just started? These are some questions you should ask yourself before investing your hard-earned money!
What is my investing time horizon?
Are you investing for the short-, medium- or long-term? This is something you will have to think about. I will always advocate for long term investing since you can not really know what most investments will do in the near future. But if you are investing with a short time horizon, you probably don’t want to invest in something like rental properties. These are not really liquid, which could mean that you will not have access to your money when you need it.
What are your dreams or goals?
Maybe you want to make a big trip in the next couple of years. Maybe you will need cash for a down payment. If this is the case, you should probably plan ahead and figure out how much cash you’ll need. If you can save/invest €1000 at the end of the month, but you need €10.000 in two years, you can only invest about €500. This way you’ll end up with the €10.000 in cash when you need it. You never want to sell an investment because you have too. This could mean that you will have to sell at a loss.
What do you want to achieve by investing?
Are you looking for retirement safety? Maybe you want some passive income? You could also try and retire a bit early to enjoy life. You should choose different investment vehicles depending on what you are trying to achieve. Maybe you want to give up some luxury or enjoyment now. This way you will be able to invest more so you can enjoy life more later on? Give it a good thought before you decide!
What is my risk tolerance?
Investing always comes with a certain amount of risk. The potential rewards often go hand in hand with the amount of risk you are willing to take. The keywords here are ‘potential rewards’! The investor’s worst enemy is himself. If you can’t take 50% downswings you probably shouldn’t have a 100% stock portfolio. Panicking is the last thing you want to do. You should always be comfortable with the risk you are taking and try to understand possible scenarios that your investment portfolio can take.
When will I sell?
Maybe you are looking for a certain portfolio size on which you can retire. After you reach your target, you could sell a certain percentage each year off which you can live. Maybe you are a dividend investor and you want to sell a stock of the company cuts its dividend? Maybe you are looking for a certain percentage gain after which you sell the company. You always want a plan before you buy a certain investment!
What will my portfolio look like?
After you have answered all the questions above, you can start thinking about your actual portfolio. What investment vehicles are you going to use? What allocation will you use? Make sure you’ll do diligent research and keep these questions in mind!
If you have any more questions, don’t hesitate to get in touch!