Seven Questions to Ask Before Investing:
We have all heard of the seven deadly sins, things that you should never do or you risk the harshest
of punishments. But many people don’t know about the seven deadly questions, involving your
investments. There are seven questions that one must answer before dropping a dime on investments,
otherwise their money could be lost in the fiery pits of… well you know where. Making investment
decisions isn’t easy, especially if you are just entering the game. There are a lot of details that many
people don’t think about until it’s too late. So, if you want to avoid the eternal pain of poor investment
plans, ask yourself these seven questions.
1. “Why?” It’s a simple question, but it’s often the hardest one to answer. Why are you investing,
and what do you hope to gain from it? In other words, you must set specific goals. Maybe you want
to save for retirement, maybe you want to send your kids to college, or maybe you just want some
breathing room from everyday expenses. Whatever the reason, it’s important that you define why you
investing your money and what goals you wish to accomplish in doing so.
2. “What is my time frame?” When can you expect to earn your money back? This all depends on
what kind of investments you make. Most of the forms of investments which you can cash out of at any
time, such as stocks, bonds, and mutual funds, often leave you with the risk of not getting back all that
you paid in. Many other investment options will limit or restrict the opportunities that you have to sell
your holdings. Make sure you are aware of these before you enter the game.
3. “What am I going to get out of it?” What can you realistically expect to earn on your
investments? Having an unrealistic idea of playing the stock market and striking it rich could leave
you simply striking out. Most earnings, as millions of people encountered in the past few years, are
dependent upon the market, and can rise or drop based on market changes. Other investments, such as
bonds, have fixed returns that aren’t as susceptible to market changes.
4. “What kind of earnings will you make?” Very few times when investing does a wad of cash
appear in your mailbox if you’re successful. Many times your success is paid to you in things like
potential for earnings growth, as in real estate purchases. Other times it can come through interest
or dividends. Knowing the details of your payback can help you make better decisions when you are
5. “What’s my risk?” And here comes the basic balance in investing, risk versus reward. The higher
the risk, the higher the potential reward. Overall there is no guarantee that you will get your money
back or receive the earnings promised to you. Unless you have your money in a savings account or a
U.S. Treasury security, both of which are backed by the federal government, your money is essentially
unprotected. Make sure that the risk you take is worth the reward that you expect to achieve.
6. “Is my money diversified?” We can all remember our mothers as some point or another
saying, “Now, don’t put all your eggs in one basket.” Well your mother’s wise words ring true in terms
of investments as well. Certain types of investments do better in certain situations, so by diversifying
your investments, you are spreading your eggs across many baskets. That way if a certain industry tanks
or sector is struggling, you will have plenty of other baskets holding your money safe and sound.
7. “What is the effect of taxes on my investments?” It may seem like the nightmare of early April