8 Important Questions to Ask Before You Start Investing
Investing can be a good way to grow your money, but it’s not without its risks. When starting to invest, there are often so many questions that cross your mind. You do not have an idea of where to begin, and as a result, some of you tend to give up, not concerned to invest at all. So, before you start investing, just a handful of important questions are enough to ask yourself in order to make sure you’re making the right decision for your financial future. Keep reading for an in-depth look at some of the important questions.
Questions to Ask Before Investing:
How much money do I need to start?
The amount of money you need to start investing depends on a few factors like the type of investment and where you're making the investment. If you’re beginner, you can always choose to invest in mutual funds via AMC website, app or other investment platforms. By investing in Mutual funds your portfolio can benefit from the expertise of the fund managers. With mutual funds, you can also start investing with a minimum of Rs.500.
What is my investment goal?
Your investment goal should be specific, measurable, achievable, realistic, and time-bound. In other words, it should be something that you can realistically achieve within a certain timeframe. By having a clear and specific goal, you'll be more likely to make wise investment decisions.
How long should I invest?
The length of time you should stay invested, primarily depends on your investment goals. If you're aiming for short-term gain, you may only need to invest for a few days, months, or years. However, if you're investing for the long term, you should be prepared to commit your money for several years. However, it's important to remember that the longer you invest, the more time and potential your money have to grow. This is due to the power of compound interest, which might allow your earnings to grow at an exponential rate over time.
What is my risk tolerance level?
Risk tolerance is the degree of variability in investment returns that an investor is willing to experience. Investors with a high-risk tolerance are comfortable with higher levels of ups and downs, while those with a low-risk tolerance are more comfortable with schemes that offer stability.
If you are an investor already, think about how you felt when the stock market was down 10% last year. Were you worried about your investments or confident that they would rebound? If you were worried and even thought of withdrawing your investment amount, then you probably have a low or medium-risk tolerance. If you were confident, then you have a high-risk tolerance.
Remember, there is no right or wrong answer when it comes to risk tolerance. It's simply a matter of finding the level of risk that makes you comfortable and aligns with your investment goals.
What value will this add to my portfolio?
An investment should offer you more than just a financial return. It should also be something that you believe in and are passionate about. If an investment doesn't add value to your portfolio, then it's not worth your time or money. If an investment doesn't fit with your goals or risk tolerance, then it's not worth pursuing. But if it aligns with your values and offers the potential for both financial and personal returns, then it could be a great addition to your portfolio. At this stage, consulting with a financial advisor can help you make an informed decision about your investment strategy.
What should I start investing in?
Starting to invest, you might feel it's a daunting task, but it’s just a series of very simple steps. The first step is to figure out what you're looking to get out of your investment. Are you trying to grow your wealth? Save for retirement? Or both? Once you know your goals, you can start researching different investment options. If you invest in mutual funds, you have fund managers and a team who will handle your portfolio based on the market conditions and your goals.
What is diversification?
Diversification is an investment strategy that seeks to minimize risk by spreading out investments across a wide range of different asset classes. The idea is that by holding a diversified portfolio, you will be less exposed to the ups and downs of any one particular asset class. There are many different ways to diversify your investment portfolio. The key to successful diversification is to make sure that you are investing in a variety of assets that have a low correlation with each other. This means that when one asset class goes down in value, the other assets in your portfolio will hopefully offset those losses.
What do I need to monitor after investing?
You need to monitor the performance of your investment. This includes tracking the return on your investment over time and comparing it to the performance of other investments in your portfolio. You need to monitor the financial health of the companies/sectors in which you have invested.
Finally, you need to monitor your own personal finances. This includes tracking your expenses, saving for retirement, and setting aside some emergency funds for unexpected expenses.
In the end, you shouldn’t make impulsive decisions by worrying about the daily ups and downs of the market, observing and analyzing the market and your portfolio by considering long-term advantages might be beneficial for you.
Mutual fund investments are subject to market risks, read all scheme-related documents carefully.