Before you invest, you need to ask yourself a few questions. Here are some simple questions you should consider:
What are my goals?
You need to know what your goals are, and why you are investing. Are you investing for retirement, education, or to build wealth? Knowing your goals will help you determine which investment products and vehicles to choose.
What is the period over which I want to invest?
The period over which you are investing is as important as your goals in the choice of your investment products and vehicles. Figure out how long you need to have the money invested. Are you investing for long term, usually more than five years, or for over a period of less than three years?
What is my tolerance for risk?
Risk is the likelihood of an investment loss. Certain investment products, such as stocks, are riskier but can also bring higher returns than others, such as bonds, for which returns are lower. Knowing your risk tolerance will help you determine your investment options. You may want to invest in a riskier investment product, or in less risky ones. Generally, young investors take more risk because they have time to make up if they lose money on their investments. Older people, by comparison, should be more conservative because they typically cannot afford losses the way younger investors can.