What to consider before making an investment

Before investing your hard earned your money on an investment, ensure you have factored in all the risks (Shutterstock)

The thought of losing your hard earned money to a pyramid scheme or an investment that doesn’t bring back any profits can be very devastating.

Those who have tried and failed know the pain of losing uninsured money and the importance of taking precaution before investing money in any venture.

Before investing your hard earned your money on an investment, there are key things you need to consider before making the big decision. Here are some things you can consider before coming to a decision:

• Review your financial situation

Before taking the big step, first things first, are you in a position to invest the money? While some risks are worth taking, not all will be the best decision you make.

Evaluate your financial situation and review your needs and goals.

When making investments, there are no guarantees you will make any profit from it at the beginning, it is important to know how much you are willing to risk.

If you have no financial expertise, seek the help from a professional to give you all the views you might miss.

• Evaluate how much you are willing to risk

Other than reviewing your financial situation, it is also important to evaluate how much you are willing to invest.

In most cases, when you are making an investment, it should be money you are willing to forget about for some period of time.

Like when investing in stocks and bonds, it is important to understand that you are likely to lose some or all your money in the process.

The best thing about taking a big risk and investing your money is that the returns will also be as high.

Time frames will also be important, that is why you need to gauge how much you are willing to risk and how long you are willing to wait for the returns.

• Create and emergency fund

No matter what you do or how much you invest, never neglect your emergency fund. Your emergency account should have money that can take you up to six months in case you lose your job or something unexpected happens.

An emergency fund will be accessible and an easy way out for you in case your investment doesn’t make returns as fast as you expect it to.

Before you make a heavy investment, always ensure your family is well covered and your emergency fund is all set.

• Diversify your investments

We are all aware of the saying; do not put all your eggs in one basket. This also applies when investing your money, do not put all your money in one place. Like buying only your employers stock or an individual stock and hoping for the best. When it flops, you lose all your money.

You can, however, create a balance between risk and returns by diversifying your investments. It is important to learn the ropes and invest your money in different sectors that don’t necessarily have their prices moving towards the same direction.

Always remember to consult with a financial adviser before making these boss moves.

• Research on investments to avoid

Always be wary of high risk products unless you are fully aware of what you are getting yourself into.

Many scammers and pyramid schemes disguise themselves in the best investment plans and when you follow them blindly and invest your money, you will lose your money. Other than the high risk investments, some are best to avoid altogether because they are not worth it.

Another thing to be wary of is where you invest your money and how much you are likely to get in return. Do not just invest because people are investing, check on the charges and do your research from unbiased sources that won’t tell you exactly what you want to hear.