Is now a good time to buy Corning? What do you think about Apple? Is Gold a smart investment?
As a financial planner and investment advisor I am often asked “Is this a good investment?” Here are 5 questions you should ask yourself before you move forward with making any investment.
1. What is your goal for the money you are investing? How much are you hoping to earn on this investment?
Earning a return on your money is only part of the equation. What do you want to do with the money? Build up your savings, set aside for a new home, a vacation, or make charitable donation? Do you have an exit strategy? Is a 20% gain enough to achieve your goal or will you be happy with a 10% gain?
2. Do you understand the downside risk associated with this investment?
The opportunity for a large gain always comes with the possibility of an equal or greater loss. This is the risk/reward tradeoff. There is no “free lunch” when investing. Do you know what this loss is?
3. What is your risk tolerance?
Everyone says they can handle risk until the market drops (ex. January 2016). Make sure you understand that markets fluctuate often and sometimes with great volatility. Will you be comfortable staying the course and not selling your investment when this happens? If you can’t, then this is not the right investment for you.
4. Do you understand the fee’s associated with this investment or product?
Is there a flat fee for this investment or is it sold with a commission? How is the person selling you this investment incentivized? Fees and incentives do matter and be sure to ask about both.
5. How does this fit into your overall plan?
Is this investment more than 10% of your overall net worth? If so, you may want to reconsider it’s appropriateness in your financial plan.
The next time you think about an investment first think how you answered these questions.
Learn more at www.lakeroadadvisors.com