As you know, one of the best ways to build wealth over time is to invest. Investing part of your money can help you put the power of compound interest to work for you in a way that helps you better secure your financial futures.
However, investing isn’t about just putting your money into some asset and then hoping it grows. Before you invest, here are 3 questions to ask yourself:
1. What Do You Hope to Accomplish?
It’s important to understand your own goals, and know what you hope to accomplish. A good investing strategy will help you reach your goals. Without a plan for your resources, there is a good chance you won’t accumulate as much as you would like over time. Before you invest, sit down and consider your goals. Know what you want to accomplish, and you will have a better idea of how to allocate your assets in order to stand a better chance of reaching your goals.
2. Do You Know What You’re Investing In?
One of the pieces of counsel that Warren Buffett gives about financing is to understand what you are investing in. Before you put your money into something, you should know how it works. Understand how stocks work before you buy a stock. Know what is likely to make bond yields rise and fall. Understand what an index fund is. Before you put your money into something, you should have an idea of what the investment is, and what influences it. You shouldn’t invest in things you don’t understand.
3. Are You Willing to Stay Involved?
Finally, you need to be willing to stay involved. This doesn’t mean that you have to check your portfolio every day and worry about daily price movements. However, you do need to be somewhat involved in your portfolio. You need to make regular contributions to your investment portfolio. Decide on an amount of money that you are comfortable with, and contribute that each month.
You should also periodically rebalance your portfolio. You want to make sure that you are on track. For portfolios that need less active management, considering your situation twice a year is usually enough. Others like to evaluate once a month. Figure out what is appropriate for your portfolio, and the regularly check the situation. You might need to shift your asset allocation, or sell an investment that no longer helps you reach your goal. Even in a “buy and hold” portfolio, you need to show some interest and regular involvement.