What Smart Investors Ask Before They Commit Their Money

No member of the financial ecosystem is incentivised to discourage you from investing.

Every stakeholder, from the broker to the marketplace and everyone in between, makes money if your money goes into the market and stays there.

To that effect then, when you think about investing and putting your money in the market, all elements work to achieve one goal – attracting and retaining your capital. Whether you achieve your financial goals or not isn’t their responsibility.

It’s yours.

That’s why it is essential to pause and ask the questions that protect your financial interests before committing your money.

Questions like:

Does this investment generate value for me?

This is a simple question, but it’s not an easy one to answer.

It requires you to look beyond an investment’s promised return and ask whether it is actually meaningful to you. For example, a fixed deposit offering a 5% annual return on $10,000 gives you $500 a year.

The real question is: Is $500 enough value for you?

Because value is subjective, there is no universal answer. But asking this question helps you define what “enough” means for your goals and make a more informed financial decision.

Should you decide that $500 is enough value, the next question you might want to answer is:

Do I understand the risk associated with this investment option?

Risk is inherent in every investment decision, but the degree of risk varies.

A fixed deposit generally carries relatively low risk because the bank is contractually obligated to repay your principal and the agreed interest at the end of the fixed term, subject to the terms of the deposit and the financial strength of the institution.

Investing in shares (equities), on the other hand, carries higher risk because the value of your investment can rise or fall. When you sell your shares, you may receive more than you invested, or you may receive less.

As an investor, you must understand how much risk you are willing and able to tolerate. Once you understand that, naturally you’ll want to answer the next question:

Do I understand how my money will be managed?

For many regulated investment products, a Product Disclosure Statement (PDS) explains how the investment works, the risks involved, the fees you will pay, and how returns are generated. Reviewing this document can help you make a more informed decision.

Depending on the type of investment, your money may be managed by a fund manager or invested directly into assets such as shares. In either case, you should understand who is responsible for managing the investment and how your money is expected to generate returns.

You are well within your rights to ask questions like:

• Are you qualified to manage my money?
• What are the fees associated with this investment?
• How often will returns be paid, if applicable?
• When and how can I access my money?

If you don’t receive reasonably confident and transparent responses to these questions, you should be wary of the person or institution asking for your investment.

While there are numerous questions you can ask to determine whether an investment is right for you, the last on this list is:

Is this aligned with my investment strategy?

The answer to this question may be the most important of all. Your investment strategy should reflect your age, financial circumstances, risk tolerance, and long-term goals.

It’s easy to get swayed when you hear someone say, “I made $10,000 trading Bitcoin,” but headlines like these rarely tell the full story.

Good investing isn’t about saying yes to every opportunity. It’s about having the confidence to walk away from investments you don’t understand, that don’t suit your financial goals, or that expose you to more risk than you’re comfortable taking.

The Intentional Investor Take

Learning about money management, asking intelligent questions, and increasing your financial knowledge are sure-fire ways to become a more confident investor. There are plenty of opportunities to invest your money, but not every investment is right for you.

If you’re unable to determine whether an investment is suitable, take the time to learn more before committing your capital. Asking the right questions today can help you make better investment decisions tomorrow.