Economics

What To Consider Before Investing

James
2 mn

The three core questions to ask yourself before investing are:

  • What do you aim to achieve from each investment?
  • How much money can you safely invest?
  • How much risk are you prepared to take?

Establishing the answers early on will help you determine which investment avenues are best suited to your needs. For instance, investing for retirement will require a more steady and low-risk approach, while looking to make high profits will require a more high-risk approach. 

Below is a list of other factors to consider:

INFLATION

Inflation is the rate at which the value of a currency decreases. Always ensure your return on investment is higher than the inflation rate otherwise your investment will lose value over time. 

RISK

Managing risk is an important element of investing. Higher returns typically involve higher risk, ensuring that your strategies align with what you are comfortable with is a must. 

LIQUIDITY

Liquidity indicates how quickly an asset can be sold. For investments made using capital that you might require in the short term, you will want to ensure that you invest in a market that has high liquidity. For example, the Bitcoin market is highly liquid while a smaller altcoin will likely be harder to sell. 

DIVERSIFICATION

Diversifying your investments helps to manage risk and spread rewards. Similar to “don’t put all your eggs in one basket”, diversification ensures that should one coin underperform the impact is greatly reduced. Try to include a range of coins in your portfolio. 

TAX

Last but not least, ensure that you are aware of the tax implications of your investment, as tax laws vary from country to country. The responsibility lies with each individual to establish what these are and adhere to them accordingly. 

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