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Things to Consider Before Making an Investment

07 May 2021, 19:55 CET

When people have never made an investment before, they can start to feel like it is the type of overwhelming decision that has so many complications and pitfalls to avoid. While this may be true, this should not let it stop you. After all, it is not just one type of personality that makes money from investing. It is an area in which anybody can get involved. With this in mind, here are a few of the top things to consider before making an investment.

Decide on Your Goals

First of all, you need to know what you are trying to achieve from your investment journey. For some people, it is a matter of making short-term gains. For others, it is making a retirement plan. No two investors are the same, and if you have better and more complete goals in mind before you invest a single cent, you are much more likely to hit your targets. Your goals should also be based on your overall capacity for risk and how much you can afford to lose. Ideally, you will be able to consult with somebody who is qualified to give financial advice as they can help you to clarify your own goals in relation to what the research shows works.

Work Out How Much Involvement You Want

For some people, they decide that they would like to take a hands-off role that largely means their investment decisions are handled by a professional financial advisor or somebody similar. However, there are others who are looking to manage their investments in a hands-on manner. Of course, it takes more effort to constantly calculate the net present value of your investments, but you will have maximum control over what you are doing. If you decide to take on the former strategy, you will have to calculate giving a certain percentage to the professional whom you have handed over your investments to.

Consider Mixing Your Investments

One of the top pieces of advice that people are often given when they start to make investments is not to put all of their eggs in one basket. This is largely down to the fact that if something goes wrong and you have put all your money in one place, you will end up losing it all. However, if you have several different sources of revenue and one does not work out, you have plenty more that you can fall back on.

Create an Emergency Fund

Before you decide to put too much money into your investments, it is better that you create and maintain an emergency fund. This should be made up of several months' worth of living costs. This way, you are able to weather the storm if you are hit by a sudden period of unemployment or another similar type of financial emergency that requires immediate funds to put right again. This can also help to give you peace of mind and more comfortable in taking risks in your investment, knowing that you are not about to lose everything.

Try Using Play Money to Begin With

If you are still nervous investing your own money, you can start to get the hang of investments by using play money. A lot of the biggest investment websites will allow you to do this, which means that you can move one step ahead of the theoretical reading of articles and towards actually putting in your own cash. Building up confidence in this area often takes time and cannot be achieved overnight. Using play money can help to move you in the right direction.

Remember to Rebalance Your Portfolio

Further down the line once you have had your money in certain stocks, it is more than likely that you will need to rebalance your portfolio based on what is currently going on in the market, or your changing circumstances. This way, your portfolio will better reflect the modern world and will not be outdated and be at risk of becoming irrelevant over time.

Speak to People

The problem with investments is that people tend to keep them to themselves. Talking about them can seriously help – whether this is with a qualified financial professional or somebody who is close to you in your family. Whether things are going wrong or right, it can certainly help to share this news.

So, before you make any investments, these are just some of the points that are worth bearing in mind that can help you to make smarter decisions.

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