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Working hard can only make you more money but does not grow your money or keep it safe. And that’s where investing comes into the picture: it fights inflation, grows money multiple times, and can help secure your future. Here we have curated a list of eight factors that you need to consider before investing:

Understand your investment objective

This is the first step. Decide what your main investment focus is. Different types of investment are better suited for various goals. If you are saving for retirement, and it’s a long way off, you might consider investing in a diversified portfolio of stocks, bonds, and mutual funds that can provide long-term growth and income. If you are saving for a short-term goal, such as a vacation or a car, you might choose a low-risk, liquid, and high-return option, such as a fixed deposit or a money market fund.

Assess your risk tolerance

Risk tolerance is the degree of uncertainty or volatility you are willing to accept in your investment returns. It is influenced by your personality, age, income, and financial situation. A general rule of thumb is that the higher the risk, the higher the return. You must assess your risk tolerance and choose investments matching your risk profile. There are many tools that can assist you in determining your investor profile, such as this one 

Have confidence in your investment skills

Investing is not just about picking the right companies but also about trusting your choices and skills. If you research well, you will develop confidence in your ability to monitor your investments and cope with the emotional and psychological aspects of investing.

Understand and review financial ratios

Financial ratios are numerical indicators that help you evaluate a company’s performance, profitability, growth, and value. Some of the common ratios are earnings per share (EPS), price-to-earnings (P/E), return on equity (ROE), and dividend yield. These ratios can help you compare companies or investment options and identify potential opportunities or red flags.

Be mindful of investment costs

Investing is not free. There are various costs and fees associated with investing, such as brokerage commissions, transaction fees, management fees, advisory fees, and taxes. These costs can reduce your net profit. Therefore, you need to be aware of the costs involved in your investment and compare them with the expected returns.

Look for competitive advantage

Often called a ‘moat’, is a competitive advantage that a company has over its rivals, such as a strong brand, loyal customers, innovative products, or low-cost production. A moat can protect a company or investments from losing market share and profits to competitors and increase its growth potential and profitability. You should look for companies that have a broad and durable moat, as they can generate higher returns and sustain their performance in the long run.

Regularly review your investments

Review your investments regularly and make necessary adjustments, such as rebalancing your investments to ensure the mix of investments is still in line with your objectives, risk tolerance, and time horizon. You should also review the performance of your investments and decide whether to hold, sell, or buy more of them based on their fundamentals and potential.

Diversify your portfolio

Diversification is spreading your investments across different asset classes, sectors, industries, geographies, and strategies. The main benefit of diversification is that it reduces overall risk and increases your chances of earning consistent returns. By diversifying your portfolio, you can lower the impact of any single investment or market movement on your overall performance. For example, if you invest in stocks, you should diversify your portfolio by investing in different sectors, such as technology, energy, healthcare, and consumer goods. You may also like diversifying your portfolio by investing in different strategies, such as growth, value, dividend, and index.

Investing is a rewarding but challenging activity. You need to consider many factors before making any investment decision. By paying attention to these eight factors, you can start to make informed and intelligent investment choices and achieve your financial goals. Contact us for specific advice for your situation.

Happy investing!