Am I ready to invest?
The key to starting an investment is for you to start with a financial goal
Have you ever asked yourself this question? Do you want to invest but don’t know how or even where to start? Are you waiting for the perfect “sign” so that you can start your investment?
To help you determine whether you’re ready or not, here are some factors to consider.
“Why will I invest?” What are your objectives, your goals, your financial aspirations? It can be as simple as buying a new car, a new house, saving for a vacation, saving for your child’s college education or preparing for one’s retirement. Before investing your hard-earned money, make sure that you have a goal attached to it. This way, you will become more disciplined and objective. Remember, you will never hit a target that you cannot see. Similarly, you cannot achieve a financial goal that you have not actually set.
“Where am I financially?” Are you the type of person who anxiously waits for his/her salary every 15th and 30th of the month so you could pay your credit-card debts and able to use it again to purchase more things? If you’re still stuck in this vicious cycle then investment is not yet for you. Consider paying off your debts first and set aside at least three to six months worth of your salary. This will serve as your emergency fund so that when your investment doesn’t go as planned, you’ll still be okay. Once you have your extra cash with you, then that’s the money that you should be investing. Consider getting a life and health insurance as well. Your insurance policy will not only protect you but also your money, because whatever uncertainty that might happen—untimely death, accidents or illnesses—you will not use your investment money to cover these expenses, instead, your insurance policy will cover them for you.
“When do I need the money?” Consider the amount of time you’re willing to wait before you can use the money that you’re investing today. Time horizon is also very important both for managing the risks of investment and in maximizing your money’s potential to earn. For example, if you’re planning for a retirement fund 15 to 20 years from today, investing in stocks or equity funds would be ideal because the long-term horizon would be able to endure the ups and downs of the market and that the potential earnings of such investment vehicles are maximized. Now if you’re going to buy a house a year from today and would invest P500,000 in the stock market hoping to double its value within the next 12 months, you might be exposing yourself and your money to too much risk and the time may not be enough to withstand the market’s volatility.
“Who am I as an investor?” Have you ever been in a restaurant and didn’t know what to order? Then you ask the waiter what would he recommend, then he told you to try their best seller, and so you did. But when you start eating it, then you realize that you should’ve ordered a different dish because it doesn’t quite fit your taste. As an investor, you need to know your own risk appetite. This tells you how conservative or risk tolerant you are when investing your money. Some can manage risks better than others, thus, consider this as well when choosing the type of investment vehicle. Remember that the higher the investment risk, the higher the potential return. Not because these are the “best-selling” products, you should have one too. If it doesn’t fit your risk appetite, then look for something that would be suitable for you.
Once you have confidently answered these questions, you’re pretty much ready to invest. The key to starting an investment is for you to start with a financial goal, knowing where you are financially, setting your time horizon, knowing who you are as an investor and most importantly, being well informed and educated by talking to experts and financial planners so that they can show you options in making the right investment choices.
So, are you ready to invest?
Carlo Verano is a Registered Financial Planner of RFP Philippines. He is a Training Services Support Assistance and Regional Trainer of The Insular Life Assurance Company, Ltd.
Source: http://www.businessmirror.com.ph/index.php/en/business/banking-finance/37273-am-i-ready-to-invest
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