Investing well is all about doing the right things at the right time. Before making investment decisions, it’s essential to understand your temperament and check whether your investment strategy aligns with your long-term investment goal or not.
Before you go on to make an investment, you have to honestly assess your financial situation. There are two things to keep in mind: risk tolerance and financial goals. If you invest your funds intelligibly in assets or opt for a startup investment, it can help you gain financial security in a few years. Your investment portfolio should include investments in cash, assets, and startups. That’s why it’s essential to diversify your investment portfolio and not put all your eggs in one basket. You need to create an appropriate investment strategy for it.
Here are ten things that you should consider before making your investment decisions:
Expected ROI (Returns on Investment)
The first thing that comes to mind when hearing the term ‘investment’ is ROI (Returns on Investment). You should know that investing in various assets gives varying ROI. There’s no one-size-fits-all remedy to it. Your investment in stocks, money markets, shares, real estate—each of them leads to varying returns.
Whatever works for others may or may not work for you. So, you have to give ample time to strategize your investment goals and approach. That’s why investors need to proceed with their research with facts before parting with their capital for any investment purposes.
The Level of Risk Tolerance
You have to determine the level of risk you can undertake for investment purposes. Risk-taking is not only about the amount of loss you are willing to take but also about your ability to tolerate risk to the extent of losing money as well. Especially in the case of early-seed startups, you should opt for syndicate investment.
Through syndicate investments, a group of angel investors comes together to invest in a particular fund or startup, with each member contributing a minimum amount of money, thus minimizing risks. However, some investors are more willing to take risks than others. Thus, it all depends on your personal preference.
Maintain an Emergency Fund
No matter how much money you are willing to invest in assets and stocks, never underestimate the importance of an emergency fund. You should always earmark up to six months of your monthly income in the form of a contingency fund in your savings accounts or term deposit accounts with liquidity and emergency withdrawal options. If you’re wondering how to invest money, the answer lies in creating an emergency or contingency fund first.
Keep Reviewing Your Investment Strategy
Once you’ve invested your funds in various assets and securities, you need to review your investment strategy at frequent intervals. You must take corrective measures wherever necessary. Also, your investment plan must fit your needs, such as when reaching a particular milestone, changing jobs, starting your own business, or investing in startups.
Stay Attentive and Focused
Make sure you’ve studied all the investment documents carefully before making an investment. You must understand how to know what to invest in. The best way to do it is by taking a look at the past records of that particular investment portfolio. For example, when you are buying a stock, you must know when to buy it and sell the same. Likewise, if you are investing in a startup in exchange for equity, you should have the exit strategy in place.
Know the Types of Investment
You can select any type of investment—be it conservative ones or aggressive investment plans. In the case of the former, investors with low risk tolerance usually select those picks. Investors who love taking on challenges head-on prefer aggressive investment options.
Assess Your Current Financial Position
It’s important to know how much funds you can invest in a company or asset. That’s why you have to analyze your current financial situation first before making any decision. You should have a clear idea of your monthly income, outstanding debts, cash in hand/bank, and other aspects to make sure that you put the appropriate amount of money into your investment portfolio.
Diversification means making the right investment choices across asset classes. By doing so, you can potentially mitigate your potential losses. One of the best ways to invest is by diversifying your investment portfolio across asset classes. Ideally, you should get your hard-earned money invested in the S&P 500 stock, which might be helpful in getting good ROIs in case your investment in a startup fails to generate enough returns.
Be Positive and Hopeful
Investment is a painstaking process. You have to keep your money invested in a particular stock or asset for a certain duration to get returns. There may be times when you may not feel happy or the market may go down. But that’s when you need not lose hope. You have to stay positive all the time.
In the words of Warren Buffett, “to be fearful when others are greedy and to be greedy only when others are fearful.” Thus, investment is all about making choices—sometimes you win, and sometimes you lose.
Start Investing at an Early Age
The best strategy for making the best out of any investment opportunity is to start early. You shouldn’t wait for the right time. The idea is to start investing at the earliest. While investing early, you should start investing in liquid assets like shares and stocks that yield higher returns, while investing in bonds or startups may take time before they start yielding returns.
Always remember that time is an important factor when it comes to investing. That’s why it’s advisable to start investing as early as possible. Making an investment may not give you immediate returns, but over time, it will give you ample returns.
You should hold your investment long term to build your wealth and generate good returns. Your investment needs time to grow, and in a few years, it would give exponential returns and also help in generating wealth.
I’m the CEO of SPV Hub. Being a founder/ co-founder (of multiple businesses) and investor (in multiple startups) myself, I experienced the challenges that an investor and a founder face while raising capital and handling multiple deals. So, we created SPVHub to simplify everything related to SPV creation and management.
I am also the co-founder of Startup Steroid.