Your Investment Checklist

If you have some money to invest for the future you should consider the following ten point checklist.

You may have a small amount to invest or something more substantial. Either way, it is vitally important that you make the right decisions and this checklist will help you to do that.

One word of warning though; don’t invest money that you cannot afford to lose.

If you have a short term known expenditure to satisfy then the best place to keep that money will be in a bank or building society account earning interest.

There is a difference between savings and investments.

The former is about usually saving on a regular basis to build up a lump sum. Investments are normally about how you apply a lump sum of money or a series of lump sums.

1 – Objective

What do you want to achieve with your investment? Are you looking for capital growth or income or a combination of the two? If you are seeking capital growth why? What specific purpose does it have? If you are investing to generate income, how much income do you need to produce?

2 – Term

An investment without a duration in mind usually looses its purpose. By knowing how long you want to keep the investment you can more certainly invest it in the right way.

3 – Capacity for Loss

It may seem strange to focus on “loss” but ask yourself how much of the invested capital you can afford to lose without it really damaging your financial well being. If the answer is you cannot afford to lose any amount, then don’t invest it. Put it in a savings account instead

4 – Volatility

This describes the way investments rise and fall overtime. If you are of a nervous disposition then volatility might cause you to lose sleep at night. But volatility doesn’t mean loss. If an investment can fall in value then so can it rise in value. You only loses if you disinvest at the wrong time.

5 – Risk

There are different types of risk to consider. One is the risk that you might lose money. Another risk is that you might not achieve the investment goals that you have set for yourself. Everyone is different and is prepared to take a different amount of risk. Only invest to the degree of risk that is acceptable to you.

6 – Taxation

Different types of investment product are more efficient for different types of tax payer. Consider your income tax position now and in the future and consider if you might pay capital gains tax on the investment growth you achieve. You might also consider the advantages of some tax privileged investment plans such as ISAs.

7 – Accessibility

Some investments are more readily accessible than others which have a fixed duration. You also need to consider accessibility in light of item 4 above volatility. What if you need to access money when the value of your investment has fallen? Can you wait until it recovers?

8 – Understanding

Some investments are more difficult to understand than others. You should not really invest in something that you don’t fully understand. If you are taking advice then do not be shy about making your adviser explain everything in plain English.

9 – Review

It does not matter where or in what you invest, if you are not prepared to review your investments on a regular basis, at least yearly then don’t invest in the first place!

10 – Cost

There really is no such thing as a free lunch! All investments have charges, even deposit accounts (have you noticed how institutions usually charge more to lend money to you than they pay you to lend your money to them? That is a charge. Make sure you know exactly how much and what you are paying for.