12 Questions for Better Investing Decisions

Always keep it simple.

Think about how you’d feel if your investment dropped by 20% in a year. If that thought keeps you up at night, you might have a low-risk tolerance and should lean toward less volatile investments.

The key is to investing keep it simple. Investing is just like writing a 50K word book. Is it hard? You’re damn right. But if you break it up into 25 sessions of writing 2K words at a time, it’s not that bad.

The key word is simple. Make hard things simple and you’ll be fine.

Here are 12 simple questions you should ask yourself before making an investment decision so you don’t end up losing your hard-earned money.

1. What is my financial goal?

Clearly define what you hope to achieve with your investments. That’s the first step to all investing decisions. Are you saving for retirement, a down payment on a house, or your child’s college education? Your financial goals should guide your investment strategy.

Let’s say you’re saving for retirement. You might consider a more conservative approach with a focus on long-term growth. If you’re aiming for a down payment on a house, you might need a more aggressive strategy to grow your money faster.

2. What is my risk tolerance?

Every investment carries some level of risk. It’s crucial to understand how much risk you’re comfortable taking on. Can you handle the potential loss if the investment doesn’t pan out within your expected time frame?

Think about how you’d feel if your investment dropped by 20% in a year. If that thought keeps you up at night, you might have a low-risk tolerance and should lean toward less volatile investments.

3. What is the time horizon for my investment?

Your investment timeline determines the kind of investments you should consider. For short-term goals (like saving for a vacation or a car), liquid investments like money market funds.

For long-term goals (like retirement), real estate and index investing generally have much higher returns.