by Catherine Thomas-Humphreys (www.thefinfluencer.co.uk)
Before diving into the world of investing, it’s crucial to take a step back and evaluate your financial foundation and goals. ‘Am I ready to invest?’ is a complex question that involves research, understanding financial commitment.
Investing can offer a powerful way to grow your money over time, but it isn’t without risks and complexities. Here, we outline ten essential factors to consider before putting your hard-earned money into investments.
From ensuring you have enough emergency savings, understanding your personal reasons for investing, and gauging your tolerance for risk, to knowing if you’ll have easy access to your funds, this guide is designed to help you make informed choices that align with your unique situation.
Whether you’re investing for the first time or re-evaluating an existing strategy, these questions can clarify your path and increase your confidence in your decisions.
10 questions to ask yourself
- Emergency saving: Do I have sufficient cash savings to use in an emergency and for specific short term goals that I’ve set in the next few years?
- Purpose of investing: What’s my reason for investing? Is this for my retirement or for a goal I have for 5+ years?
- Risk tolerance: Am I comfortable taking a level of risk with some of my money? Investment values can rise and fall – do I feel comfortable with this?
- Capacity for loss: Can I afford to lose some of this money? Would losing some of this money in the short term affect my day to day standard of living today?
- Investment understanding: Do I understand this investment? Do I know how this investment works, what its invested in and what risk level it is?
- Product tax rules: Do I understand the tax rules related to this Investment? Pensions and ISAs are known as Tax Wrappers. Do I understand which taxes do and don’t apply to this investment?
- Can I get my money out easily: For example property is less “liquid” than shares, bonds. How long until I can get this money back if needed?
- Are these investments regulated: Can I see the provider and product is regulated by the FCA?
- Am I protected: If my chosen provider goes out of business, am I covered by the FSCS government compensation scheme?
- Should I get financial advice: Do I feel confident enough to continue investing or should I seek advice? Is my situation particularly complex, do I have multiple goals or am I looking to invest a significant sum?
What comes next?
Once you know you’re ready to invest, it’s time to get started. Here’s a few resources to help you start your investment journey:
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