10 Things to Consider Before You Make Decisions of Investing Money

Investments imply putting aside your savings into equity, mutual funds, real estate, commodities or business with an intention of capital appreciation (wealth accumulation) over a pre-set tenure (short, mid or long) which is based on individual preferences. Given that it is not possible for someone else to define your goals and choose an apt option for you, we list 10 key pointers which will help you in your investment judgment.

1. Draw a personal financial road-map - Assess your financial situation

It is vital that you evaluate your financial situation in terms of liabilities, priorities, lifestyle choices, income, etc. While it is essential to instil certain levels of compromise in order to invest, it is never sensible to over-squeeze your expenses beyond comfortable levels. Analyse thoroughly and based on your cash inflow, define the frequency and type of investments.

2. Identify your Risk Appetite - Evaluate your comfort zone in taking on risk

Everyone has his/her own temperament and precedence which defines his risk bearing capacity. Some people are stronger risk-takers while many others are risk averse. Outlining strategies that align with a person’s risk appetite will ensure potential returns and will make investments trouble-free. There is no point in risking your money if you are losing your sleep worrying about it all the time.

3. Define your Objectives

This is a crucial point to consider before you foray into any investments. Your goal can be short-term money accumulation for basic needs like buying a car or saving up for the down payment of your home, etc.; or long-term like retirement planning, children’s education, etc.

4. Investment Distribution – Diversify your Investment

Never risk your entire corpus towards a single investment option. If opting for mutual funds analyse the current market condition and distribute your investment across segments or areas. This will help manage risks and ensure potential returns.

5. Perform an Individual-level Analysis

While we understand that reviews and suggestions are important, understand that these alone cannot settle on your investments. On no account rely on friends, recent news or expert advice on television channels and blindly risk your money. There is no easy money and there is no ready-made choice. You need to base decisions solely on your needs after detailed scrutiny at an individual level.

6. Stash some Emergency Capital and Never Borrow - Create and maintain an emergency fund

Investing entire amount towards liquid funds over long-term is not an ideal decision since you must always be prepared for any cash emergency in the short run. By no means take loans for investments. Understand that these are risk-associated mechanisms and by borrowing capital you are adding substantial burden to your financial arrangement.

7. Be Warned of Scammers - Avoid circumstances that can lead to fraud

These days there are countless bogus investment options available. Do not fall prey to fancy sounding promises. Make your decisions wisely.

8. Scrutinize Investments Regularly - Consider re balancing portfolio occasionally

Keeping a track of your portfolio helps you identify the investment areas that are not working. Nonetheless, one should be careful while switching funds; only switch funds from one investment to another if the latter option has not worked well repeatedly for a longer span of time (and not just for a quarter or two).

9. Be a Critic of your Investment Decision

After identifying and prior to implementing, wear the hat of a critic and try to write down all the negative impacts associated with the judgment. Evaluating your own choices critically helps to ensure that your study is fool proof and that your decision is wise.

10. Control Your Emotion

Emotions can be an enemy when it comes to investments. Many investors lose their capital due to this factor. Always remember Investment is an ongoing learning process so never time the market and avoid getting emotional when you are making a decision.

By Suren Subramaniam | 28 August 2020