8 Considerations When Starting to Invest

8 Considerations When Starting to Invest

I’m sure that I don’t need to tell you, but investing is important in the modern world.  From getting married to having children, there’s a lot that requires money in this crazy world of ours and investing is a good method of building up the money that you need.  Heck, investments are all but essential for retirement to say nothing of building up money for schooling or buying a home.

But there are lots of investments out there.  Hundreds of companies issuing bonds, thousands of mutual funds, tens of thousands of stocks; there’s more investments out there than any normal person has to time to thoroughly investigate.  (And that’s not even including the ever increasing number of alternative investments available.)  With how many investments there are out there, how can you find the ones that are right for you?

Before you can even begin with your investing research, though, it’s good to sit down and figure out your needs and desires.  Each type of investment has its advantages and disadvantages, and if you figure out the traits that fit your needs, you narrow down your research substantially.  There will still plenty that could suffice, but it will be a small amount to the many, many, many investments available altogether.  With all of that said, let’s look at

8 Considerations When Starting to Invest

1. Your Morals: There’s a lot of things to consider when investing, but one thing to remember is to stick to your morals.  If you don’t want to support gambling, pornography, or alcohol and cigarette manufacturers (or any other particular type of company), then you can invest in other options.  Admittedly, that’s easier said than done sometimes; if you buy broad-based mutual funds, which is usually a good option, you’re likely to get some undesirable companies as part of the overall holdings.  But there are increasing numbers of socially responsible mutual funds that meet one or more ethical goal, allowing you to achieve your moral and financial goals at the same time.  Speaking of goals…

2. Your Goals: Before we get into the money side of things, it’s good to look at your personal goals for the future, both short-term and long.  Are you planning to buy a car, an entertainment studio, a house?  Do you want to take vacations to far-away lands or attend expensive events?  Do you want to retire, and if so, are you looking to do so when you’re 70, 60, 50, or even younger?  You might not be able to answer all these questions now, but it’s good to start planning out your future; most such goals require money, and the sooner you get started, the better.

3. Goal Amount: When you know your goals, you can determine the amount of money you need, which should be the starting point for your investment planning.  Getting an idea of the money required and when it’s need in order to meet your goals will help you create your plans as we go through the rest of these steps.  The more money you need, the more risk you will need to take on, although that brings us to our next consideration:

4. Starting Money: The less difference between the amount of money you have now and what you need, the less risky the investments you need.  Start with a lot of money, and you can make a lot more without much risk.  Start with only a little, and you’ll need to take on more risk and/or lower your goals.  (Yes, before you say it, this situation means things are better for those who have more money already; sorry, that’s just the way of the world.)

This is not the best starting investment amount...
This is not the best starting investment amount…

5. Continued Investments: You could call this your ‘regular contributions’ if you prefer, namely how much money you add to the investment pool once you’ve begun.  The more money you can add and/or the more frequently you can put more money into your investments, the quicker you can get to your goal and/or the less risky an investment you require.  If you can put money, even relatively small amounts of money, aside regularly, you can reach impressive sums given enough time and investment growth.

6. Time Frame: Another major consideration when you start your investment planning is how much time you have available.  The types of investments you should be considering for a goal three years from now are much different than for one in three decades.  The longer you have available, the riskier the investment can be; you’ll have more time available to recover from any losses and reach your monetary goal.  Although, time to recover doesn’t always mean willingness to accept those losses, which leads us to:

7. Tolerance for Loss: Not everyone has the ability to handle a significant fall of their investment’s value (that is, a high risk tolerance).  If that’s the case for you, you’ll need to lower the riskiness of your investments to decrease the chance of such big drops (and potential heart attacks).  This means changing some of the other factors we’ve discussed to accommodate a less risky (and likely less profitable) investment portfolio, but if it avoids the chance of you selling your investments when they drop in value and ending up even worse off…

8. Willingness to Research: Finally, something that’s not always brought up, but might be among your most important considerations: how much research you are willing to do.  Many investments, such as stocks, require tremendous amounts of research to follow and make proper investments; if you aren’t ready to spend hours and hours each week to keep up, you should stick to simpler investments like mutual funds.  (If you want to go even simpler than that, there are investments like target-date funds that provide ways to get all your necessary investing done with a single investment.)

If you sit down and consider all these issues, you’ll find yourself with the information you need to start your investment planning.  Any other issues you’d consider when planning to invest?

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