This blog post is not to tell you what you should know about investments but instead, what you should consider before investing. It is to give you the awareness you need before you think of taking up any investment opportunity.
Investment is a step further from savings but again, this article is not about how you can save up for investment. If you are looking to double up on your savings plan in preparation for investment, read this article on digital saving.
Since investment is making your money work for you, you can only think of investment after you have saved up for the leap of faith you are about to take.
Whether you have enough savings or not, these are the four (4) questions to ask yourself before you start investing.
- Do I have an emergency fund?
This is one of the important questions to ask and critically consider before you start investing. Never start investing without first having an emergency fund.
An emergency fund is just as the name implies. It serves emergency purposes. It is also that money you can always run to when you don’t have any other means of income.
Having an emergency fund keeps you away from unnecessary begging when your money has been locked down in investment.
If you have your emergency fund ready and kept somewhere, it’s time to start saving for investments.
2. What is my risk appetite?
Risk appetite is the amount of risk you’re willing to incur in any form of investment.
In truth, all forms of investment are risky. They all come with some level of risk because nothing is ever certain or predictable.
If you have a low-risk appetite, it is advisable to start with investments that keep your capital even if the investment goes bad and your returns on investment cannot be guaranteed.
By doing this, even if you don’t make any returns on your investment, your original money is still safe. It can be traumatizing to lose money. But having an emergency fund that prevents you from putting all your life savings in an investment can be consoling.
Invest in only things you have the heart for. With time, I’m sure your risk appetite will increase and you can step into riskier investment waters.
Some people prefer short-term investments — that’s how far their risk appetite can go. And for some, they can take the long-term investment route. It all depends on you. You can also opt for both. Do only what works for you.
Investment is making your money work for you. That’s the simple definition of investment. How you make it work for you is dependent on you.
3. Do I know what I’m investing in?
Before you put your money into any form of investment, do your background checks and ask relevant questions so that you don’t get scammed.
There are a lot of people out there just looking for how to take people’s money but disguising themselves as investment platforms. A lot of people have lost their money this way because they didn’t do simple background checks and the returns were juicy.
You get to see a lot of investment offering high returns. Not all are lies but the main thing remains that you should ask questions and do your background checks.
4. Does this investment opportunity align with my values?
Invest in things that align with your values. That’s because we have a conscience. We will not want to put our money in a course we don’t support just because of the gain and not have peace of mind that we are supporting it at the end of the day.
If you’re investing in stocks, you sometimes have the opportunity to choose what kinds of stocks you want to put your money into. Invest in whatever gives you peace of mind. Invest in a cause or business you’re totally proud of. Invest in what makes you happy. This again boils down to asking the right questions while doing your background checks.
Asking the right questions can help you make the right decisions. Due to the risky nature of investments, it is important to have an emergency fund before you start investing, know your risk appetite, do background checks and invest in only what will make you happy when you think about your personal values.