Things you should know about yourself before investing
You may be surprised to learn that there are important aspects about yourself that you should realize before your begin investing.Dealing with money (and the outcome) is a highly personal endeavor so the more you know about yourself the more likely the chance you will be successful.This is never truer then with investing.By determining what you really want you will know how, when and what to invest in. Although there are many factors that can determine which investment path is optimal there are certain things that should always be considered.Here are some things you should know about yourself before investing-
- What are your investment objectives?There are usually certain factors that all investors are looking for when deciding where to place their money.This can include the safety of the capital expenditure, current income and capital appreciation are factors that should influence an investment decision and will depend on a person's age, stage/position in life and personal circumstances. The younger the investor (and the more liquid the income) will give investors a chance to afford to be more aggressive in his or her investing strategies. In addition the investor's financial position will also affect his or her investing objectives. For those with less liquid income the risk of speculation may be too great. The bottom line is that as a general rule, the shorter your time horizon, the more conservative you should be. For example, if you are investing primarily for retirement and you are still in your 30s, you still have plenty of time to make up for any losses you might incur along the way. At the same time, if you start when you are young, you will not have to put huge chunks of your paycheck away every month because you have the power of compounding on your side.On the other side if you are about to retire, it is very important that you either safeguard or increase the money you have accumulated. You will not want to expose all of your money to volatility right before you need to start accessing your assets.
- What is your investment personality? This can also be known as your style.Are you thrill seeker always looking for the next charge or do you prefer quiet nights at home while enjoying the calmness, stability and safety of your backyard? It is important to understand just how much volatility you can stand to see in your investments. While figuring this out for yourself is far from an exact science; there is some truth to an old investing maxim: you have taken on too much risk when you can not sleep at night because you are worrying about your investments. Another personality trait that you should consider and will determine your investing path is your desire to research investments. Some people love nothing more than digging into financial statements and crunching numbers while others just might not have the time to plow through prospectuses and financial statements.
- What is your risk tolerance?One of the biggest determining factors in investing is knowing how much risk you really want to take with your money. The most important part of this factor is understanding that this is very different for every person. To help you determine this and if you are not sure about how you would react to market movements, there is one good starting point. You can try using one of the online investing simulators to help you determine how much risk you would take if you investing real money.You may find that you are happy with a conservative approach or that your investing style is much more wild then you ever knew.