Man thinking about things before starting a race

The 3 most important things to think about before you start investing are your goals, time horizon and attitude to risk.

These are vital if want to find the right investment strategy. 

1. Your investment goals

Goals are important in all walks of life. You need to have a goal so you can create a plan to achieve that goal. Investing is no different.

‘If you don’t know where you are going every road will get you nowhere.’ – Henry Kissinger

Work out what you are saving for. Is it a new car, house, holiday of a lifetime, school fees, retirement?  Work out much how it will cost. Only then you will be able to start working out a successful investment plan.

‘What makes most people just dreamers versus those who live the dream is that dreamers never figured out the price of their dreams.’ – Tony Robbins, Money Master the Game

2. Your investment time horizon

Your time horizon for investing will affect the type of investments you should choose.

If your investment horizon is nearby, it would be prudent to invest in safer assets. Your money still has a chance to grow but is protected against short term volatility.

On the other hand, if your investment time frame is much longer you could take on more risky investments. You have the time to recover if they don’t work out as well as you expected. The longer you can invest the more the highs and lows tend to iron out over time.

This often referred to as life cycle investing.

3. Your attitude to risk

Your own attitude to risk has a big impact on your investment choices.

You need to be comfortable with your investments so you can sleep peacefully at night. You don’t want to be worrying about them to the detriment of your mental health.

Even worse, over reacting at the first sign of bad news and withdrawing your funds could be detrimental to your long-term financial health.

Is investing right for you?  If you are not prepared to take any risk, investing is not for you and that’s okay.

Investing can be uncomfortable at times but this feeling is only temporary if you have an acceptable level of risk.

Things to think about before you start investing summary

Everyone has different goals, deadlines and attitudes to risk. The great news is there are different investments available to fit everyone’s needs.

One of my long-term goals is to be completely financially independent in the next 25 years. I am comfortable with taking a reasonable amount of risk with some of my investments to help me achieve my goal.

However, if I was saving for a deposit on a house in five years I wouldn’t want to risk losing my hard earned money. I would invest in very low risk investments or even keep the money in a bank account.

Make sure you have a clear plan and don’t take more risk than you are comfortable with.

Next Steps – to learn more about investing read the best book for beginners.