Why Are You Investing in the First Place?

We all have our perceived views on investment as there will always be someone in any market conditions who says "Now is good time to invest!" Not that they are wrong, investment unlike gambling is not some tool where you "try to put in money and hope to earn money." Now that is wrong, that is not investment, that is just wishing or gambling if you will.

Here I'll like to address the fundamentals - Why in the first place, you want to invest?

Firstly, what are your financial goals? I.e. how much money you want to make out of investments. If you invest with no goals in mind, you simply are just going to lose out. Like gambling, how often gamblers who have already won so much yet continue to gamble? "I want to win as much money as possible!"

Secondly, what is your risk appetite? Are you a risk taker or adverse to risk? Bonds or equities? Emerging markets or blue chips? The higher the potential returns, the higher the potential fall. For example, would you rather have:

* A guaranteed of $5000 or

* 70% chance of getting $7000 or nothing or

* 50% chance of getting $10000 or nothing

Its a numbers game, my friend. :) Risk is an interesting thing, its very much a psychological game.

Thirdly, what is your time horizon? How long can you lock in the money before you want to cash it out? Differences very much exist between short-term (3-5 years) and long-term (10-15) strategies. There is actually a correlation between risk and time horizon. Hypothetically, the longer you can lock in your money, the less risky it is and possibly the higher the returns. Remember its just hypothetical, nothing is guaranteed in the world of investments.

Fourthly, what is your current cashflow? You don't want to invest your entire savings right? (Though I believe some people do that) Now this is important, always keep a sum of money (at least 3-6 months of your expenses) in your bank account or tin foil can if you will. Also if you are chalking up high on your credit card bills such that you have difficulty paying, don't even think about investing. Unless you are super confident you done your homework and have much faith you will definitely make money, forget about investing. Its good that if you earn, but if you lose? Always, always, always do something about your credits and debts first!

Understanding who you are and what do you want, that is the key fundamentals of why you want to invest. Now most importantly remember, loss and gain are part and parcel of investment. Unlike gambling, investing is not something you should try banging your luck on. After all, what are the economists in the world for?

Jiayang_Zhang

Enter Your Email Address For Update :

FeedBurner

Related Post :