It’s so tempting to start at the end. The advertisements with the ‘promise’ of big return’s, usually highlighted with equally big text. There is always the standard disclaimer (usually in small type but who reads it?) “past performance is not a reliable indicator of future returns”. Yet we continue to get sucked in.
A mate at a BBQ tells you about how he invested in a little tech stock and it’s now worth 5 times what he paid. A few years ago small cap resources was the hot sector of the day. There will be another one soon. When we hear these stories it’s tempting to dive straight into what we think can deliver us the “next big winner”.
When you dive into the ocean there are usually some questions you’ll ask yourself first:
- How warm (or cold) is the water?
- Is there a rip?
- How deep is the water?
- If I get into trouble is there anyone around to save me?
Too often we start at the end by diving straight into an investment without asking enough questions. Here are a few questions you should ask first:
- What are your values?
- What and who is Important in your Life?
- What are your goals, this year, in the next few years and longer term?
- What’s your tolerance and willingness to absorb risk?
- How long are you investing for?
- Do you need to draw any income or capital from the investment?
- What have been you past experiences with investing?
If an investment is not aligned with your values/goals/strategy/risk profile – you’ll eventually end up questioning why it’s in your portfolio.