If you’ve been thinking about getting into financial investment and in particular Forex trading, the worst thing you can do is to jump in blind.
Yet a significant number of new investors do that every year, relying only on hearsay or poorly-understood information.
A major study showed that our lives improve with the addition of more income, but only up to about $75,000 per year.
While smart investment decisions can be a great way to improve your capital, maintain your savings, and even get a better income, foolish ones could wipe you out.
Here’s a look at some of the questions you need to ask yourself before you start investing.
Ready to Invest?
While investment can be a great opportunity, it’s not right for everyone. You need to be in the right financial situation to even start. That means making sure that your debts are at a controllable level and ensuring that your finances are protected even if things go wrong.
You also need to ensure that you already have savings, whether they’re intended as a retirement fund or just a safety net.
Consider your future situation Never rely solely on your investments to supply the money you’ll need in the future.
How Much Money Do You Need?
Most people assume that more money is always desirable, but for the majority of investors that simply isn’t true.
A major study from Princeton University’s Center for Health and Well-being shows that happiness and quality of life do improve with the addition of more income, but only up to about $75,000 per year. After that point, day to day happiness levels out and money stops buying happiness.
Take the time to calculate exactly how much money you need every year to be comfortable and set goals based on that information. It’s a much smarter strategy than starting out aiming for the sky.
How Long Do You Have?
New investors, especially those who can’t afford to lose it all, should stick with making smaller investments over a longer period of time.
Investment time frames vary significantly from one person to the next. That means the strategy that worked for your best friend or for a relative may not be right for you.
Consider your age, your health and the reasons you choose to invest. For people with goals of five years or less, cash savings are normally the best option.
More conventional investments work better for people with time frames of 6 years or more.
How Do You Feel About Risk?
For some people, risk is exhilarating and exciting. For others, it’s an anxiety-inducing nightmare. If you want to be successful in your investment attempts, you need to understand not just the risks you’ll be taking, but how they’ll make you feel.
People who are comfortable with taking big risks and who have the capability to bounce back with them can choose investments with potentially greater losses and higher returns.
Choose the right level of risk If you know that taking a big risk with your money will leave you feeling stressed and miserable, stick to more conservative investments.
How Would You Prefer to Invest?
The two main strategies for investing your money are all at once and in regular small quantities. Lump sums are generally best if you know you have the funds to spare, if you’re confident in your investment choices, and if you’re comfortable with risk.
Most new investors, especially those who can’t afford to lose it all, should stick with making smaller investments over a longer period of time, however.
A beneficial side effect of a regular, incremental investment plan is known as dollar cost averaging. It means the chances of investing at market peaks (and troughs) are greatly reduced since your capital is drip-fed into the market over time.
By asking yourself these basic questions before you start investing, you don’t just boost your chance of success. You also ensure that you can handle the situation if something goes wrong. That helps you make certain that your investments will be a positive choice overall.