Questions to ask yourself before investing

Investing is a tricky business as many of us might have found the hard way. The stock market is a crazy roller coaster, full of unexpected bumps and drops that no one can see. One day it appears calm and stable, the next there are disruptions sending many investors into a panic. In such an unstable world the slightest changes in world events can lead to terrible consequences for investors. So before you invest much of your money in something so unstable, there are probably a few questions you should ask yourself:

Is the money you are about to invest something you will need back in the near future? Generally speaking the stock market tends to get stronger over time regardless of the small bumps and problems encountered on a day to day level. Even a recession will probably eventually give way to brighter prospects in the near future. If you can keep your money in the stock market over a long period of time you are far more likely to see a dramatic return than if you invest and then quickly withdraw. On a day to day level the market is simply too unstable, but over several years it tends to build. So ask yourself if the money you will invest is something you might need in the next couple of months. Do not spend the rent money on an investment! There is a good chance that you will only loose money in this situation.

Another related but unpleasant question is, can I afford to loose this money? If the answer is no, then reconsider making an investment. Certain concervative investments will pay off over the long run, but there are plenty of stocks that will waste your money. Be cautious and realize that playing the market is a risky thing regardless of the type of investment you make. If you cannot afford to loose the money you are investing, put it in the bank and collect interest. If you can afford to invest, be extremely cautious of how you place your money.

Can I trust the investment advice I have received? This is a very important question for any investor, regardless of whether or not they have lots of experience or just a little. Firms provide investment advice, but with the market so complex and unpredictable, even they cannot see where a stock will go in the next week, or even days. Be very cautious of relying on friends or relative's advice about the market. While they may be well intentioned, a bad piece of advice could put you in a very bad financial position.

What will I do if I make money from my investments? This might not seems like a necessary question to ask befor you invest, but most of us need to ask it. The reason is that many of us think of the market as some sort of magical tool utilized to grow money out of thin air. Remember that there is nothing mysterious about the market. It might be complex, but it works according to expectations and particular situations. You might make some money today and spend it thinking that you will make more tomorrow. Many investors are disapointed to find that they have lost money a day or week after they made it. Be sure to budget for loses.

If you can ask yourself these sorts of basic questions before investing you can help to ensure your financial safety. If in doubt in regards to an investing issue, make sure to contact a professional.