Researching is as important as investing. The knowledge gained from research can help investors make sound investment decisions.
Some common investment pitfalls include not having a long-term plan, letting fear and emotion control your choices, not diversifying your portfolio, attempting to time the market or falling in love with an asset for the wrong reasons.
Most of these pitfalls can be easily avoided if you are equipped with the right information. This article provides a list of important questions to ask before investing.
Questions to Ask Before You Invest
1. What is the investment?
Only invest in something you understand. There are different types of asset classes, from stocks to fixed-income securities. Be clear on the type of investment and the role it’s going to play in your portfolio.
2. How does it work?
Once you know the type of investment, you need to figure out how it works, what’s expected of you, and how you get your returns. Is it an active or passive investment? Will you need a funds manager, or is it more hands-on?
3. What are the risks and potential returns?
You’ve heard that some investments are riskier than others, and while this is true, you need to know the level of risk and what you can expect in return because sometimes risky investments don’t always have solid returns.
Find out your risk tolerance level.
4. How is it valued?
Knowing how it’s valued establishes an asset’s or company’s value and compares it with its present market value.
5. How liquid is the investment?
You should know if your investment can quickly be converted to cash. Some investments are easily liquidated compared to others.
6. How long should you expect to hold the investment?
There are short and long-term holding periods. Long holding periods are one year or more, short term is less than a year. Know the difference and which one works for to you.
Questions you should ask about the Investment Company
7. Who is behind the investment company?
Knowing publicly listed corporations’ shareholders is simpler than privately held businesses. It can be challenging even with public companies. However, knowing as much as you can is good.
8. What is the company’s track record?
Notice their past performance, achievements, or failures.
9. What is the company’s management structure?
Knowing the management structure also helps you see if you want to put your money.
10. What is the company’s reputation?
Before doing business with a company, be sure they have a solid public reputation. This helps with trust and dependability, amongst other things.
11. What are the company’s financials?
This is indirectly a report card to see how the company is performing. Financial statements include details about a company, including its net profit, which is the amount left over after all costs have been met. You want to see healthy profit margins and cash flows.
Questions you should ask about the Investment Industry
12. What is the current state of the industry?
The investment industry is constantly involved, and with inflation increasing yearly, it’s important to know where your chosen investment stands.
13. Are there any trends or changes that could impact the investment?
Although investing in long-term assets is advisable, financial analysts in the investment company should be able to predict the changes or trends that affect your investment price.
14. Who are the competitors and industry leaders?
Every business has competition, whether big or small, but it’s important to know them and the industry leaders so you can follow them and keep in touch with whatever tactics, ideas, or changes.
15. What are the regulatory environment and compliance requirements?
Regulatory compliance is the company’s adherence to local, national, and international rules and regulations that are important to its operations. All vital information on this must be made public.
Conclusion
Pay attention to all that is necessary before and after investing. Seek clarification if there’s a grey area. Lack of transparency is a warning sign. Money should always be invested rationally, carefully, and wisely. Finally, remember that there are no wrong questions, and it will give you more confidence and faith in where you want to put your money.
ALSO READ
Behavioural Finance in Action: How Emotions Affect Your Investment Decisions
