Before you start investing, it is important to consider your budget and financial goals, and how much risk you are comfortable taking on. Like many things in life, investing comes with its own share of risks and rewards. You can do this on your own or with the help of an advisor.
Set your budget and financial goals
Setting your financial goals will help you develop an investment plan to meet those goals. A good place to start is assessing your current financial situation and creating a budget. Consider the following types of questions:
- How much do you earn?
- How much debt do you have?
- What do you spend your money on?
- What do you want to save for?
- How much time do you have to invest before you’ll need your money?
Review this checklist to help you identify your financial and investing goals.
This worksheet can help you create your budget.
Understand your risk tolerance
Most investors want the greatest return on their investments possible. But higher returns usually mean higher risk.
Before you start investing it is important to understand your tolerance for risk. If your investment goes down in value, how would it affect your day-to-day life? Are you okay with your investments frequently going up and down in value? Or do you prefer a fixed and steady return? Questions like these help you understand your tolerance for risk.
Take this quiz to assess your risk tolerance.