“Risk comes from not knowing what you are doing.” – Warren Buffett.
The above is pretty sage and sensible advice from one of the most successful investors of all time. Investments are tried and tested and can help grow wealth over a sustained period of time. They can also ensure your money is working hard for you.
The caveat to this is in ensuring you have both a firm grasp of investments as a concept, as well as the specific area(s) you are looking to invest in.
There are undoubtedly good investments and bad investments but asking yourself the right questions from the get-go as a potential new investor can help ensure the odds of long-term success are weighted very much in your favour.
If you’re thinking about investing, here are five key questions to ask yourself before you start:
What is the balance between risk and reward?
What is your attitude towards the potential risks? What are your short, mid and long-term goals? How much percentage of your overall assets are you willing to invest? The higher the percentage, the higher the risk.
The same goes for the type of investment. If you buy stocks in one sector, such as a brand new start-up specialising in the latest technological advances, this could present high growth opportunities but is potentially a more volatile investment than a lower risk option such as a Global Multi Asset, which ensures your investment is divided into many different countries and sectors, therefore lowering the risk if only one of those should fail. Weigh up your risk and reward in relation to your circumstances.
Do you understand the investment?
Although you don’t need to be privy to boardroom discussions and know the whole backstory of the businesses you might be investing in, you’d expect your financial adviser to know enough detail to make a sound judgement. You need to understand the strategy behind the investment, and the associated risks and rewards, but when it comes to the details, make sure your adviser is asking all the right questions and explaining it to you in a way that you understand.
How long do I want to invest for?
With investments, the bottom line is that you want a better financial future for yourself and your loved ones. Most investments need time to grow and bear fruit, so ask yourself whether you are likely to need the money in the short-term or whether you are happy to let your investment grow for maximum rewards. There are options available for every circumstance, and your financial adviser will be able to find you the best match.
Do I have a strategy?
We all budget. We have a firm idea of our incomings and outgoings, we put savings aside and decide where our money goes and how/when we spend it. Equally, it is important to have a solid strategy when it comes to investing. Is there a specific business/sector you are looking to invest in or do you want a diverse portfolio? Are you looking to continually invest on a regular basis or just utilise one lump sum?
Do I know where to go for advice?
Even Warren Buffett will ask for advice. When looking to invest for the first time, it is incredibly important to take advantage of experienced professionals in this field. From jargon and strategy to investment options and the legalities – a credible financial adviser can listen to your requirements and make suggestions that could be critical to your success.
Investments can be extremely rewarding, worthwhile and lucrative – they can also be complex and ever-changing. An experienced financial planner can mitigate risk, enhance rewards and ensure your investment strategy is on track and working hard for you.
“I practice what I preach, and always have done. I would only put my clients’ money where I’m willing to put my own. It increases their confidence in me, and they trust my judgement.”
James Prince, Founder & CEO at Prinden
Contact us today to help you take your first positive step as an investor.
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