5 smart investment checks

Investing can make your money work harder and help you to reach your financial goals. By asking yourself these 5 things before you invest, you can increase your chances of success and help get the most out of your investment. 

1. Will I need this money soon? 

Thinking about when you'll need your money is a great first step towards investing with confidence. Building a timeline helps you to make smarter investment choices and get the most from your money. Investments can rise and fall in value over time, so giving them room to grow means you're giving yourself the best chance to benefit. Here are some things to consider, to help your money work harder for you: 

Emergency fund

Do you have an emergency fund in place to cover any unexpected expenses? A good rule of thumb is to have at least 3 months of your living expenses put aside. This will act as a financial cushion, helping you to handle any sudden shocks without needing to cash out your investments early. 

Market fluctuations

Are you comfortable with your investments increasing or decreasing in value at any time? Ask yourself if you would be okay if this money was tied up or worth less. Before investing, it's important to check that the investment fits your goals, timeline and how soon you’ll want to be able to access your returns.

2. Do I understand how this investment works?

It’s important to have a good understanding of how your investment will generate returns and choose the right investment for your goals.

Some investments will offer returns as capital appreciation, meaning your asset can increase in value over time. Other investments may pay your returns to you through regular payments, which are often referred to as dividend payments. 

To help you invest with confidence, it's worth having a clear understanding of these things:

• Are there any platform fees, management fees or other costs? If so, make sure you are comfortable with these expenses, as they can chip away at your returns over time.
• How easy is it to sell or cash out from this investment? Some investments can be sold easily while others may be more difficult, time-consuming or costly to sell. How easily you can cash out from your investment, can affect your ability to access the funds when needed.

3. Is this investment right for my risk tolerance?

How much risk are you able to take on? High-risk investments may offer higher returns, but they also come with the risk of significant losses.

Consider your current financial situation:

• How stable is your current income?
• Do you have major financial obligations, that may affect your ability to take on risk?
• Can you handle losses, without panicking, or could downturns cause you stress?

Your personal circumstances should guide your risk tolerance. If you rely on stable returns, you may prefer to invest in low risk, income-generating investments.

Learn more about high-risk investments

4. Does this investment diversify my portfolio?

Take a look at your current portfolio (all the investments that you currently hold). Are your investments concentrated in one sector or economy? If so, consider diversifying across different economies, asset classes (a group of similar investments) or industries. When one investment underperforms, others might perform better, stabilising your overall returns.

New to investing? Learn more about diversification.

5. What if my investment falls in value?

If your investment goes south, are you able to weather the loss? Always have an emergency savings fund or alternative sources of income in place.

Invest little and often. Building a healthy habit with regular investments can often outweigh one-off large deposits in the long run. Investing always comes with some risk, so it’s important to assess what level of risk you’re comfortable taking without affecting your ability to pay your bills or meet any other financial commitments.