Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
6 Things to Consider Before You Make Investing Decisions
Guest Post | March 18, 2020
If there’s an open secret that most successful businessmen share, it’s this: diversify your investments. In this way, if one venture results in failure, you are ensured that you have other aspects of your business that will support you through this rough patch.
The question is, how do you determine the smart investments from simply careless and risky ones? Don't worry, in this article, we are going to share with you the things that you should consider before you make an important investment decision.
1. Analyze your financial situation
The first thing that you should do before you make any type of investment is to assess your financial situation. Lay down your goals and analyze your current risk tolerance. You need to consider what will potentially happen should this investment fail. If needed, we even suggest working with a financial professional to help you out. Should a very profitable business opportunity present itself and you simply can’t pass on it, then we recommend looking into Personal Loans for a Business Startup at OpenLoans so you won’t need to dip into your existing capital and affect your other ventures.
2. Every investment is always a risk
In relation to the previous point, you should always view any type of investment, no matter how smart or potentially profitable it is, as a risk. One can only guarantee so much when it comes to the world of investment.
One effective formula to determine your risk tolerance is the duration of your investment. If you think you’re going to need to liquidate that money in less than a year, or the next couple of years, then you should probably think twice before investing. However, if you’re planning to invest your money for five years to a decade, then you have enough time to recuperate your funds should the stock market fluctuate violently during the first few years of your investment.
3. Set up your emergency fund early
Just like how no one can predict what might happen to the stock market in the future, there’s also no way to predict what the future has in store for you. You probably don’t need your money right now, and depending on your assets, you probably have nothing to worry about until your retirement if all of your plans pan out. But what if it doesn’t? Somebody might get sick, or a natural disaster can devastate you with unfortunate losses.
See: Alternative Lenders Continue to Steal Business From Banks
Hence, we definitely recommend to set-up an emergency fund that you can tap on should the unexpected happen. It should be able to keep you and your family supported for at least six months if, for any reason, all your ventures fail and you have no other way of getting income. Compute how much your expenses are monthly then multiply it by six months (or more). That’s how much you need in your emergency fund.
4. Rebalance your portfolio regularly
Rebalancing is the act of buying or selling assets in your portfolio in order to bring it back to the level of your preferred asset allocation or risk tolerance. Financial experts suggest doing this every six months to a year or so.
This will also allow you to adjust your investment according to your current needs and financial goals that might have changed in the past year. Rebalancing your portfolio is also the perfect time to do a financial reassessment and checking which financial milestones and goals have been met—and the ones that aren’t.
5. Learn how to spot fraud
There are a lot of scam artists out there, and just when you’re sure you know how they operate, they come up with a new way to scam people. What’s more, is that they are also aware of what’s happening in the stock market, in fact, they’re probably even more updated and attuned than you. This is the reason why it’s always smart to ask for an unbiased opinion and consider the advice of trusted family and friends.
See: Cyberattacks now cost small companies $200,000 on average, putting many out of business
6. There will be fees
One of the usual tell-tale signs of a scam is excessive fees. Unfortunately, all investments require you to pay certain fees in one way or the other. Investment professionals, for instance, require either a flat fee or a percentage out of your portfolio. Even online investment platforms have pricing packages depending on the size of your portfolio.
Finally, you will still need to pay your taxes no matter how you earned that money. In the case of investing, you will be charged what’s called capital-gains taxes. Investing in retirement accounts and college savings plans will provide you of a tax break, though.
In the end, how you handle your money and where you invest it will still boil down to you. The stock market is an ever-changing environment, the only way to smartly navigate your way around it is to never stop learning and keeping yourself updated.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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