Don’t throw your money down the gutter! Do a checklist of the 7 things you really must know before start investing. So, worrying about the future, home, child education, and watching too many ads to invest in the mutual fund for all these purposes but without knowing anything about the stock market scenario literally, you are going to throw your money in well.
Here in this article, I am going to discuss these 7 things you need to know before you start investing.
Things You Need to Know Before You Start Investing
First, Know your current financial circumstances. Know your debt level. Calculate your income and expenses by abiding into account the following:
- Mortgage repayments
- Personal tax
- Loans and overdrafts
- Living expenses
- Emergency funds
- Vehicles expenses
- Entertainment
- Holidays
- School fees
- Credit card debts
- Family commitments
Before you start investing your money in any investment funds, you should know how much you could limit each month for investment. The general rule is that you should clear your debts first, then save and invest later. That is to say, the more money you put aside now, the more suitable it will be for your future. I would say put aside 10% of your income for rainy days. 10% is a small amount that you won’t feel a fraction. Save it until you have managed to build “Emergency management funds”.
Second, Prepare funds for Emergency management. This goes in line with point 1. You need to keep at least 3 to 6 months of your income as emergency management. After you have managed to do that the additional money that you saved can be used to invest.
Third, Protect yourself and your family first. By this point, I mean you should have basic health & life insurance that insures you and your family against terminal diseases and accidents. This is very essential as even though you might lose all your money through investment and if you or your family members need medical attention, it will be well taken care of.
Fourth, Know your risk level. If you are not able to take big risks, short-term investment and swing trading are not for you. It’s better to invest in mutual or trust funds which will give a steady payout and have a lower risk. If you are a high-risk or medium risk-taker, you can try to start investing in stocks, growth, ETF, and hedge funds.
Fifth, Diversify your investment portfolio. The expert would tell you it is a must to diversify your investment. Your investments require to have a steady mix of stocks, mutual funds, and/or bonds. Besides that, you should invest in different industries and/or different regions. This will help you minimize your risk as oscillations in the markets will not have a big impact on your investment portfolio. Your ideal mix will be 20-40% stock and the rest mutual funds, gold, and bonds.
Also Read: Emotion In Investing – How Much Important?
Sixth, Do your own research before you invest. It is good to pursue expert advice. But, the money is ultimately yours. So you require to do some research and make a sound decision on what to invest in even though your financial advisors might have already worked it out all for you. This is to make sure you know what you are investing in and are able to keep track of them. If your investments suffer losses you will be capable to make the right decision whether to sell or hold if you know your stuff well.
Seventh, Do a stock take yearly if not frequently. Your investment portfolio might already be reaping profits. But, it is good to know how well you manage at the end of the day. Reinvest the profits and observe if you have success. This will serve as motivation for you and will make you more determined to achieve the financial goals that you decide on earlier.