Most millionaires invest in stocks, but
Before you start hitting that ‘Buy’ button
Ask yourself these 10 questions to ensure the investment you're choosing is right for YOU:
Before you start hitting that ‘Buy’ button
Ask yourself these 10 questions to ensure the investment you're choosing is right for YOU:
1. What is my goal
The 1st & most important question to consider before you buy anything
‘What am I trying to accomplish?’
Investing for retirement vs investing for a down payment on a property are two very different goals that will require very different strategies
The 1st & most important question to consider before you buy anything
‘What am I trying to accomplish?’
Investing for retirement vs investing for a down payment on a property are two very different goals that will require very different strategies
2. What is my risk tolerance?
If your goal is to make as much money as possible & your risk tolerance is extremely high, the lottery or yolo bets on obscure cryptocurrencies might appeal to you
Just consider that these ‘investments’ almost guarantee you will not reach your goal
If your goal is to make as much money as possible & your risk tolerance is extremely high, the lottery or yolo bets on obscure cryptocurrencies might appeal to you
Just consider that these ‘investments’ almost guarantee you will not reach your goal
Your tolerance needs to align with your goal & the time horizon of that goal
Generally, the higher the risk, the higher the potential return
And the lower the risk, the lower your potential return
Generally, the higher the risk, the higher the potential return
And the lower the risk, the lower your potential return
However, time is another factor
With stocks, the longer your holding period, the higher your chances of a positive return
With stocks, the longer your holding period, the higher your chances of a positive return
3. What if it goes to zero?
There's a real possibility that any investment can go to zero
Ask yourself, ‘will I be financially devastated if this goes to zero?’
If the answer is yes, either avoid it, or consider ways of mitigating the risk and lowering your exposure
However…
There's a real possibility that any investment can go to zero
Ask yourself, ‘will I be financially devastated if this goes to zero?’
If the answer is yes, either avoid it, or consider ways of mitigating the risk and lowering your exposure
However…
If you’re investing in a fund like the S&P
The chances of this going to zero are very low
If they do, this would mean the collapse of the United States economy and much of the global economy these business transact with
The chances of this going to zero are very low
If they do, this would mean the collapse of the United States economy and much of the global economy these business transact with
So we’re talking nuclear holocaust, or similar
In which case, money doesn’t matter
In which case, money doesn’t matter
4. What is my investment time frame?
Generally, the longer your time frame, the more risk you can accept
Because you have more time to recover from losses and to ride out the volatility of higher risk investments such as young companies in their rapid growth phase
Generally, the longer your time frame, the more risk you can accept
Because you have more time to recover from losses and to ride out the volatility of higher risk investments such as young companies in their rapid growth phase
Consider if each investment makes sense from a timing point of view for YOU
5. When and why will I sell this investment?
If you know why you are buying, you should have a good idea of why you would sell
Here are some examples...
If you know why you are buying, you should have a good idea of why you would sell
Here are some examples...
- If you buy because you’re expecting 20% revenue growth, you should generally sell if revenue growth does not meet your expectations and shows no signs of recovery
- If you buy for a dividend yield and it is withdrawn or reduced due to falling earnings, it may be time to sell
- If you buy for a dividend yield and it is withdrawn or reduced due to falling earnings, it may be time to sell
6. Who am I investing in?
It’s very difficult to judge the capabilities of a management team with the limited info you have access to
Look for: successful track record, compensation schemes, high amount of net worth invested in company, founder led
It’s very difficult to judge the capabilities of a management team with the limited info you have access to
Look for: successful track record, compensation schemes, high amount of net worth invested in company, founder led
7. Am I diversified?
There is a clear line between balanced diversification and over-diversification
Imo, a retail investor should limit a portfolio to 10-15 stocks
Any more, and you won’t be able to keep on top of earnings to monitor company success against your thesis
There is a clear line between balanced diversification and over-diversification
Imo, a retail investor should limit a portfolio to 10-15 stocks
Any more, and you won’t be able to keep on top of earnings to monitor company success against your thesis
2. Is this my area of competence?
Peter Lynch is famous for his theory that ordinary folk have a huge advantage over investment professionals in the fields they work in
Cont...
Peter Lynch is famous for his theory that ordinary folk have a huge advantage over investment professionals in the fields they work in
Cont...
This is because an investment pro will never have the knowledge of these industries or companies than someone who works in it
Use this to your advantage
Use this to your advantage
9. Why do I still own that investment?
It’s good practice to reassess your investments regularly and ensure you still want to own them
Selling for a loss or cutting a big winner is difficult if you let your emotions get in the way
So...
It’s good practice to reassess your investments regularly and ensure you still want to own them
Selling for a loss or cutting a big winner is difficult if you let your emotions get in the way
So...
Keep your feelings out of it as much as you can and make sure the investment makes sense for your goals, risk tolerance and time horizon
10. Should I be managing my own investments?
Many people try to manage their own retirement savings in the evenings & at weekends
This can be hard to keep on top of
And paying someone else to manage it for you can cost you considerably
Many people try to manage their own retirement savings in the evenings & at weekends
This can be hard to keep on top of
And paying someone else to manage it for you can cost you considerably
Especially when you factor fee’s and active managers inability to outperform the market over time
Therefore, consider low-effort, low-fee investing strategies such as index funds & ETF’s
And automate these as much as possible with direct deposits each week/month
Therefore, consider low-effort, low-fee investing strategies such as index funds & ETF’s
And automate these as much as possible with direct deposits each week/month
If you enjoyed this thread, please:
- Retweet the original tweet below
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I’ll show you how to manage and invest your money so your 9-5 becomes optional
- Retweet the original tweet below
- Follow @FiSavvy
I’ll show you how to manage and invest your money so your 9-5 becomes optional
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