7 questions to ask before you invest (2024)

FAQs

What questions should you ask before investing? ›

This sort of five percent rule is a yardstick to help investors with diversification and risk management. Using this strategy, no more than 1/20th of an investor's portfolio would be tied to any single security. This protects against material losses should that single company perform poorly or become insolvent.

1 At 10%, you could double your initial investment every seven years (72 divided by 10). In a less-risky investment such as bonds, which have averaged a return of about 5% to 6% over the same period, you could expect to double your money in about 12 years (72 divided by 6).

A: Five rules drawn from Warren Buffett's wisdom for potentially building wealth include investing for the long term, staying informed, maintaining a competitive advantage, focusing on quality, and managing risk.

RULE #1: THINK LONG-TERM

Those who are able to successfully navigate the stock market are not speculators or gamblers, they are investors. Investors know they can beat the market because they think differently, they think smarter, and they think longer-term.

To help with this conversation, I like to frame fund expenses in terms of what I call the Four C's of Investment Costs: Capacity, Craftsmanship, Complexity, and Contribution.

What are the 3 A's of investing? ›

Amount: Aim to save at least 15% of pre-tax income each year toward retirement. Account: Take advantage of 401(k)s, 403(b)s, HSAs, and IRAs for tax-deferred or tax-free growth potential. Asset mix: Investors with a longer investment horizon should have a significant, broadly diversified exposure to stocks.

The 4-3-2-1 Approach

One simple rule of thumb I tend to adopt is going by the 4-3-2-1 ratios to budgeting. This ratio allocates 40% of your income towards expenses, 30% towards housing, 20% towards savings and investments and 10% towards insurance.

The least essential criterion while making an investment decision is the mode of investing money. Whether the deposits can be made online or directly by cash or check does not significantly influence the investor's decision-making process.

Know the fundamentals

So, for any stock you're considering, it's a good idea to check the company's recent earnings history and compare that to analyst expectations. Does the company have a track record of beating or falling short of EPS forecasts?

Wealthy investors are known for their strategic approach to investing, considering various factors before making investment decisions. Three key aspects that often influence their investment choices include risk tolerance, portfolio diversification, and goal-based investing.