When it comes to investing, there are three important questions that you must ask yourself. They are straightforward and basic, but very often many people do not think about them. When you ask yourself these questions, it puts things in perspective for you.
Instead of chasing the latest and hottest investment, or reading numerous 10K’s, or building financial models, think about what you want your outcome to look like.
When you determine the outcome of what you want, you can put the other items into perspective. So without further ado, here are the questions.
The Three Important Questions
Here they are:
- How much money do I want to invest?
- How much do I need back?
- When do I get it back?
How Much
Pretty simple. How much are you willing to invest? A little bit? A whole lot? Maybe you are speculating with some play money. Or you have committed a significant amount of your funds to a solid investment. Perhaps you are somewhere in between.
Returns
What kind of money do you need at the end of the investment period? A lot of people say, “As much as possible.” That’s wishful thinking. Putting things into perspective and being realistic about it is more important.
For instance, you invest $10,000 and want $17,000 at the end of a 10 year period. That’s a little over 5% return each year. That’s a reasonable return and it’s possible.
Larger and more significant returns are achievable. These require more risk – a higher willingness to perhaps lose your original investment.
Timeline
When do you need this money? Next summer? 10 years from now? Longer? Framing out the timespan helps you determine where to invest.
In the End
So when you triangulate these three points, you come up with a pretty clear idea of what your investment strategy and portfolio composition will look like.
Want to chat about investments and the three important questions? Get in touch with me.