16 May 2011

6 Questions Every Investor Should Ask Before Starting a New Investment


Many people think that investment is an easy job. Before starting a new investment that, you should ask 6 questions before you start an investment.


1. What is your desired return?

To the newbie, they would like to achieve more than 100% return in a day. In reality, it is nearly impossible to achieve such a consistent result in long run. Although there is a theory to state that 'the higher risk you can take, the possible return you can get', you must first understand what is your desired return and why it makes so important to you? I always set 26% for my annual return as it is around 100% return for 3 years or 1,000% for 10 years. Although sometime I can achieve higher return in short run, however, I achieve worse result in the year where there is financial crisis. With a better asset allocation strategy, I believe now I am in the midst of waiting investment opportunity to come in next bear market to come. 

2. What is your investment time horizon?

Life is long. We will enter different stage of life. Some will require long term such as for children's education needs or retirement planning, some require short term plan such as property purchase / wedding planning / traveling planning. While we are hard to distinguish all the time horizon for all these needs, having a combination of short term asset and long term asset is a good strategy for your to overcome any obstacles in your life journey.

3. What is your financial commitment / liquidity needs?

Some aggressive investors will be 100% fully invested in risky investment products without having second thought of their financial commitment / liquidity needs. After calculated your financial
commitment such as the needs of paying mortgage loans ,car loan, other outstanding debt and living expenses etc, you are able to figure out the plan which suits you best.

4. How much time can you allocate to study the investment opportunity?

For a savvy investor, it takes around 1-2 hours time at least a day to study the opportunity arises from recent market condition. If you do not have enough time for this, you can always look for a professional financial advisers / fund managers to assist you in managing your portfolio.

5. How much is your investment capital?

For young investors with a small start up investment capital, I would encourage you to start investing in Unit Trusts and Blue Chip Stocks before you are ready in riskier asset such as Forex / Futures.

6. How much money you can lose in order before make an earning?

Although we don't like to lose money, but there is always a risk in the market. If you cannot stay in peace when the market drops significantly, my advise is to stay away from the market and invest in lower risk products such as Money Market Funds / Bonds / Fix Deposit. But, you must allocate some in long term investment for your retirement needs.

By accessing all these questions and getting the answers from there, I believe you will be more confident in finding investment opportunity with more patience and peace of mind.

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1 comment:

  1. A successful future is come but with some planning and efforts. You exerted a large amount of control over your own marketability, retirement planning, your effectiveness within the organization, and therefore how much you were paid. To achieve retirement success, your investments must produce sustainable, increasing cash flow, and grow in overall value. Nice blog to understand us about a successful retirement.


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