Legendary investor Peter Lynch once said: “Know what you own, and why you own it.” While simple, this advice goes unheeded far too often by most investors. The question I pose to you is:
What is your process for making an investment?
How do you go about identifying if an investment is right for you? Do you have a set process you follow before pulling the trigger? Do you have a particular “thought exercise?”
If you do, then the information below may help to refine that process. If not, then start developing one immediately and use the information in this article as a starting place!
Asking the right questions should be the first step in your process, and is unquestionably, the most important. There are many questions you should ask before making an investment, the first of which are questions you need to ask yourself. The remaining questions should be asked to advisors or third parties who may be able to provide you with answers or provide additional perspective.
“Successful people ask better questions, and as a result, they get better answers.” – Tony Robbins
Here are some examples of questions to ask:
- Do I understand this?
- Why am I thinking about this?
- How does this help me accomplish my most important goals?
- What is the best that could happen? The worst that could happen?
- How much of my time will this take? What is the time commitment to do this well?
- Is this scalable?
- What other opportunities am I missing out on by doing this?
- How does this compare to other similar investments?
- Does this help diversify my investment portfolio? Or does it make it more concentrated?
- What is the time frame necessary to see a return on this investment?
- How liquid is it?
- How can I protect myself?
- Do I understand the risks?
- Does this fit my risk tolerance? Meaning am I comfortable with the risks?
- What advantage (or disadvantage) do I have versus other investors?
- Ie. information, capital, time, etc.
- What are some examples of success? Examples of failure?
- How do broad economic conditions impact this?
- Timing. Is this the right time? Why?
- Valuation. Am I paying the right price for this?
The comprehensive knowledge we have of our client’s entire financial situation, as well as their goals and dreams, allows us to utilize this process on our client’s behalf. This leads to better and more customized advice and recommendations.
Please let us know if you have any questions,