Making certain investments can be a bit scary. Unless you’re super wealthy, investments are intimidating. Regardless of which type of investment you’re considering, there are always certain questions to ask yourself that will help you determine whether or not a specific investment is actually worth it. Here are those key questions:
1. What do I want to get out of this investment?
What are your expectations – realistically? This is the first and most basic question you need to consider before investing in anything. Make sure that your expectations aren’t too high considering that specific investment.
2. What are you willing to risk?
When it comes to throwing cash at an investment, you need to fully know what you’re comfortable risking. Usually, this comes to down to 2 things: Money and time. How much are you willing to risk on the chance that a particular investment will pay off? Basically – what are you willing to lose if it comes down to it?
3. Do I have all the facts?
This is key for both small investments and large ones. Make sure that you have all the relevant information you need. Compile all the facts! Having facts in front of you before an investment can also help you evaluate risks, possible rewards and manage expectations. KNOW THE FACTS before investing in anything – large or small. You don’t want to waste money on something that isn’t worthwhile.
Nerd Tip: Create a list of facts regarding specific investments and calculate risk versus potential reward.
4. Does this investment make sense?
Sometimes, we invest in things we don’t really need and this can happen for a variety of reasons. Maybe it’s dependent on chance, meaning that essentially, it’s a gamble. You need to ask yourself in your current situation if taking that “gamble” makes sense.
Judge whether or not a specific investment makes sense based on your: budget, where you are currently and if you have the money to spare. You don’t want to go into debt.
5. Long term or short term?
Do you want a return on your investment (monetary, physical, personal etc.) to come quickly or are you playing the long game? Short term versus long term boils down to when you want to see results and whether or not you are willing to wait.
6. Worst case scenario?
What is the worst case scenario on this specific investment? Do you stand to lose money, time or anything else? Estimating the worst case scenario will help you evaluate whether or not a “risk” is worth it. Will you be okay if this worst case scenario occurs in regards to this investment?
7. Pros Versus Cons
One of the best ways to know for sure whether or not you want to make a specific investment boils down to the good old pros versus cons. Write it out. Do the pros outweigh the cons? If so, it’s probably time to make that investment.
Investments don’t have to be scary. You just have to be smart.
Look at investments the way you look at other aspects of your life. If something has the potential to be hugely beneficial, it’s probably time to make that investment. If you’re uncomfortable, (for whatever reason), you need to calculate if that discomfort is justified. Be realistic in your expectations.
Use those 7 questions when thinking about investing in anything. If your answers are favorable – do it! It’s really that simple. (Remember, it’s usually us who over-complicate things).
Good luck, nerds! Happy Investing!