Questions to Ask Before You Invest
Successful investors know that in order to make a good investment with their money, they need to ask these questions:
What’s my financial objective?
What do I plan to do with the money? When will I need it? The answers will start narrowing your options.
What’s my risk tolerance?
How upset will I be when my investments hit a rough patch?
Take the risk tolerance quiz and choose the right investments for you.
Am I ready to hold the investment for a while?
Investing is a long-term relationship. Successful investors stick with their choices for five, 10, 20 or more years. These buy-and-hold investors outperform short-term investors by a wide margin.
Do I understand what I’m buying?
If you don’t understand the company’s products or services and how it makes money, you're less likely to make a good investment.
What’s the outlook?
Are there trends that could boost or dampen demand for a company’s products and services over the next decade? Does the company itself have any issues that could affect future sales and profitability?
Is this a good (or too good) price?
How does the current price compare with its past prices and with similar investments? If it seems like a bargain, why is it so low? Something that seems too good to be true probably is.
What are the costs?
Check out fees, commissions, loads and expenses. The more costs you pay to acquire the asset, the less money you make. Everyone who sells investments gets paid somehow, usually in several different ways. Successful investors know how to minimize fees and get the best deals.
Why am I buying it?
Creating a balanced portfolio of investments helps guard against losses and minimize your risk. Everything in your portfolio should add to this overall balance. If you can’t answer the question of why you’re buying a certain investment and how it is adding to your overall portfolio health, you shouldn’t buy it.
[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by the National Endowment for Financial Education.]