Checklist to Consider when Investing

Investing can be scary. We have been researching what to consider when making our own investments. This is a checklist of ideas we are going to consider when looking at future investments.

• Is Investing A Good Idea
• A person with high interest debts may be better off taking care of these debts and then looking at new investments once those debts are taken care of, e.g., any investment is going to be very hard pressed (and likely high risk) to pay back more than a monthly credit card payment at 20%.
• Goals
• One interesting tip is to write down your reason for making an investment, so you can revisit your assumption and decide if it still holds true at a later date. This can help determine when to sell at a profit, or know when to cut losses at a loss if the reason for the purchase no longer exists.
• What a person wants versus what they really need from an investment.
• Some people have all they need, but risk it because they want more.
• As people get older or closer to their goals, they may choose to dial down their risks to protect their financial situation.
• Plan
• How to achieve the investment goals?
• Strategies like:
• Dollar Cost Averaging.
• Lump sum contributions.
• Reasonable Expectations
• Determine what is likely, but also the best and worst cases (potentially loses the full amount of the initial investment).
• Risks
• Higher returns are associated with higher risks, but higher risk does not always means higher returns.
• Many of the great investors seem to focus on studying risks and want to avoid unnecessary risks.
• Security
• If there is a possibility the investment can be lost.
• Are there any guarantees, e.g., Government backing, insurance?
• Past Performance
• Previous performance is not a guarantee of future performance.
• Future Performance
• Future performance is key to a good investment, but it is hard to look into the future. People try research as best they can to determine the most likely outcome.
• Fees
• Fees are one of the things and investor has some control over.
• How much does it cost to get in and out of an investment?
• Ongoing fees can eat into profits.
• Paying higher fees should bring some other benefits.
• Time frame
• Will the money be needed in the short term? High risk investments are often volatile and an investment that goes up and down a lot can be bad if an investor needs to pull out of the investment at short notice.
• Longer time frame people are often more comfortable with higher risks, which generally end up with higher returns statistically.
• How quickly can an investment be converted to currency?
• Important if an investor needs to convert their investment quickly.
• If there any penalties for doing so.
• Covering Living Expenses
• When investing it is a good idea to have funds available if any life emergencies occur, e.g., loss of employment, family health issues.
• Some people like to have at least 6 months of savings to cover emergencies.
• Tax
• People consider the different tax implications in the country they live and where the investment may be (as this may also incur tax).
• Tax already paid on an investment that may reduce or provide a tax benefit, e.g., Franked Dividends.
• Vehicles for reducing tax via government schemes.
• Free Money
• Are there free perks available, e.g., free trades?
• Will an employer match contributions made?
• Fraud
• Is it too good to be true? Make sure the investment is a real.
• Legalities
• People can check the:
• Investment is legal to protect themselves and their wealth.
• People they are dealing with are licensed if required and their licence is current.
• Financial Advisers Register in Australia
• https://www.moneysmart.gov.au/investing/financial-advice/financial-advisers-register
• Advice
• Can consider if they need advice and weigh up how much it might cost them.
• Tracking Investments
• People can set up utilities to:
• Track investment performance.
• Current capital gains, tax implications and tax reports.
• Diversification
• Some people like to spread their investments
• Using different asset types (mining versus retail sales etc).
• Different locals, (different politics, economies, regulations).
• Currencies.
• Risk classes (high, medium, low).
• Time to sell.
• Investing too heavily in ones own employer can mean you lose your investment and potentially a job at the same time.
• Currencies
• A local currency may go up or down against global currencies (meaning extra gains or losses and is a different risk to the actual investment).
• Some people like to hedge their investments, so if a foreign country changes, their investment remains similar if they cash out.
• Currencies are a way to diversify investments.
• Research
• Investment Reports
• Many investments will provide a report of their investment.
• Potentially biased.
• External Financial Researchers
• Can provide various levels of insight into an investment.
• Also can have a self interest or motivation (commissions etc).
• Regulated Reports
• Information that is provided due to regulation.
• Hopefully has not been tampered with.
• Rebalance
• After a while, some like to re-evaluate their portfolio and make sure it is still meeting their goals and the plan is implemented correctly.
• Rebalancing may involve adding or removing certain investments to regain the diversification and risks targets of the current plan.