Points to Consider Before Making an Investment
Consider Your Options Before You Invest
Before you make any decisions on your finances it makes sense to give some thought to some of the following questions as they will be fundamental in ensuring you receive the very best advice for your given circumstances.
The first, which may seem quite obvious, is how much money do you have available to invest? For example, you may want to keep a certain amount in a liquid deposit account for any immediate future needs or unforeseen circumstances. As a general rule of thumb it is always wise to have 6-12 months worth of income readily accessible, but you may also want to consider any additional needs over and above your normal income requirements such as; emergencies or luxuries such as a holiday.
After considering your immediate income requirements and deciding on an amount that you can afford to invest, you may then want to consider how much liquidity you would need, for your long –term future needs? What are your time horizons? Will you be happy to take a fixed regular income? Do you want to leave the investment for capital growth or would you prefer a safety net making a percentage of your capital accessible should the need arise in future years? In general, it could be any of the original capital invested (not necessarily the income or growth), which may be needed in less than five years from the start date.
The next question is whether you will need income or capital growth or a combination of the two. The income requirement could be for the maximum possible level of immediate income, alternatively some clients would rather focus on maximum capital growth.
Your attitude to risk and approach to investing will be central to the recommendations that will be made for both types of investment and the balance between them. Some clients will not be prepared to take any capital risk and as such their portfolio will need to be constructed solely of bank protected products, while others may be prepared to accept a small degree of risk in exchange for a higher return. Risk can be a confusing subject as there are a number of risks that will apply aside from the obvious risk to capital. In short these could be inflation risk, whereby your money loses its spending power as inflation takes over. Counterparty risk, the strength of the institution your money is held with, and short fall risk, in simple terms not having enough money to cover your financial needs.
It is important to seek professional advice from a qualified and experienced Financial Adviser to see how any of these risks may impact on your finances and identify and quantify your overall financial needs. Your adviser will then be able to present you with the best available options to consider.
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