When you invest, do you consider your objectives? Do you wonder why you make the investment decisions you do, or do you have a general goal and just go with the flow?
The truth is, most Americans invest on autopilot. They either go with whatever their financial planner, advisor, or broker recommends or invest in the same 401(k) everyone else is investing in. They don’t put much thought or effort into their investment decisions. That’s because most Americans don’t have lofty goals when it comes to investing.
Most Americans are focused on retirement, and that’s it. Their retirement plan even has an online tracker to show them whether they’re on schedule financially for retirement.
But who decides whether they’re on track or not? Certainly not the owner of the 401(k). Those trackers are usually based on the average retiree’s needs, not the individual’s needs.
Do you have loftier goals than the average retiree? Don’t you want more out of life, and don’t you want to retire sooner than the average retiree? If so, maybe it’s time to reassess your individual investment goals and objectives and ask the right questions when making your next major investment decision or just making an investment decision on your own.
Here are 12 questions to consider before making your next investment decision:
(1) What are my primary financial goals when investing?
What are your primary financial goals? The answer will have a significant impact on whether a certain type of investment fits within those goals. Are your goals to retire comfortably, retire early, accumulate wealth, create generational wealth, and pay for children’s education?
(2) What is my time horizon for these investments?
Is your time horizon short-term, medium-term, or long-term? Are you looking to make a quick buck? Or is your time horizon more long-term? Maybe it’s a mix. Maybe you’d like to create income in the short and midterm while preserving wealth in the long term for yourself and future generations.
(3) How much risk am I comfortable taking?
What is your risk tolerance in terms of what you’re willing to invest in and also in terms of whether you’re willing to try something new? Sometimes finding an investment that turns out to be less risky than what the public perceives takes a willingness to take a risk and try something non-traditional.
(4) What is my current financial situation?
How do your income, debts, expenses, savings, and other investments impact your ability to take advantage of the present opportunity? Are you in a position to invest, and if not, what do you need to change in order to take advantage of these opportunities in the future?
(5) Do I have any specific financial needs or obligations in the near future that my investments need to address?
This goes along with your investment timeline. If your needs are both for intermediate cash flow as well as long-term security, you will need to assess whether a present investment opportunity meets those needs.
(6) What are my expectations regarding the return on my investments?
Are you looking for steady income, capital growth, tax savings, capital preservation, or all of the above? If you’re looking to maximize short-term as well as long-term returns, ask yourself if a certain investment will fit the bill.
(7) How important is liquidity to my investments?
Do you value liquidity and the ability to quickly convert your investments to cash, or are you willing to forego liquidity and tie up your investments for the long term if it means better returns?
(8) Am I drawn to specific sectors or types of investments?
Are you drawn to technology, real estate, and socially responsible investing, and why? Do these sectors or types of investments fit within the parameters of your other goals and objectives?
(9) How much do I want to be involved in my investments?
Are you looking to be hands-on with your investments, like actively managing a business or piece of real estate, or do you prefer to be hands-free and let someone else direct traffic? The answer to these questions will impact whether you incorporate more active or passive investment strategies.
(10) What are my tax considerations?
Are tax strategies part of your overall investment objectives? Are you seeking aggressive tax breaks like deductions, depreciation, and tax deferral strategies? Understanding the tax implications of investment opportunities should be weighed carefully when presented.
(11) How will these investments fit into my overall financial plan?
This is an overarching question. Does the investment fit within the parameters of all of your financial objectives and goals, or does it just check off a few boxes?
(12) What kind of legacy do I want to leave?
Do your goals involve preserving wealth for the care of future generations and charitable causes? Consider how your next investment decisions will contribute to this goal of a lasting legacy.
Next time you’re faced with an investment opportunity or chance to take an alternative investment route, ask yourself these 12 questions.
The answers can provide you with not only a clearer picture of what you’re aiming to achieve through your investments but also help you tailor a strategy that aligns with your goals and circumstances and determine whether a particular investment fits within those parameters.