The smartest thing you can do with your money today is to invest it so that it will grow and provide income in the future. But before you start investing, there are several questions you should ask yourself and factors you should consider carefully to ensure that you’re taking a smart approach to building your future. Here are seven things to consider before you start investing your money.
1) Don’t Forget About Fees
Ask any successful investor and they’ll tell you that it’s important to pay attention to how much you’re paying for investment advice. When it comes to mutual funds, for example, fees can make a substantial difference in your long-term gains (or losses). With some mutual funds charging more than 2% annually in management fees, if you are only gaining 4%, then 50% of your profit will go toward those fees.
2) What Are Your Goals?
Before you start considering what kind of investments might be best for you, you need to sit down and write out your goals. Where do you want your money to be in a year? In five years? The more specific your goals are, and then give yourself a deadline for reaching them (you can always adjust as time goes on). Those who fail to plan, plan to fail. Write out a realistic investment plan and see if it aligns with your long-term financial goals.
3) Are the Currencies Directly Related?
Trading between two directly related currencies, such as trading CAD/JPY or USD/CAD can provide a good amount of liquidity. If you’re trading between unrelated currencies then there’s a high degree of probability that your trade will be subject to slippage, which means that if you want 100 Euros worth of Canadian dollars, you may end up with slightly more or less than that (typically slightly less) and also pay a transaction fee in either direction on top of it.
4) Do They Have Currency Hedging?
The reason hedging is important is because of currency fluctuations. In a perfect world, you’d want your investments to be denominated in the same currency as your expenditures. Unfortunately, that’s not possible in today’s world – most investment funds are denominated in US dollars, which means they will act differently than if you were holding them in Canadian or Australian dollars.
5) Is There a Minimum Deposit Amount?
The more you can invest, obviously, the higher your potential profits will be. But if you don’t have enough cash on hand to open an account with a broker or fund company, then it doesn’t make sense to start trading. When evaluating brokers and funds, check out their minimum deposit requirement.
6) When Can I Withdraw My Money?
The number one tip for new investors is to understand that there are no overnight riches. You may have heard tales of people winning a lottery and retiring, but these stories are about as common as pro athletes who go broke after retirement. If you plan on retiring with your nest egg intact, then you need to be prepared for a long-term investment period. So don’t invest in what you can’t afford to lose. And always ask yourself: when can I withdraw my money?
7) Research, Research, Research!
There are no surefire ways to get rich quickly, and it’s important that you approach investing with caution. Before starting an investment program, research is key. Look into past investments and see what has been successful in the past and what hasn’t. You don’t want your money going towards industries or companies that have proven to be failures in the past!