financial planning

Considerations Before Investing a Large Sum of Money

Guest writer: Adie Carole

When people talk about money habits the focus tends to be on things like keeping track of expenses, maintaining a decent credit score, paying off debt efficiently, and saving for large expenses. And sometimes, amidst these prominent and important concerns, it’s easy to forget that investing is also an important aspect of setting up a strong personal financial outlook.

Of course, personal investment needs to be a careful process. A lot of research should go into the effort, and these days it’s also important to keep an eye out for shady misinformation or even fake trading bots advertised as quick ways to profit. Provided a careful, strategic approach though, investment can become a productive aspect of your financial plan.

Here are some important things to think about before you get started:

Assess Your Risk Tolerance

By carefully considering your options before investing, you can considerably reduce the risk of losing your money. However, this risk is never zero. As a result, the amount of money you invest and where you invest it should be determined by how you balance the impact losing this money would have on your personal finances with what sort of gain you’re hoping for (or in need of). If your goal is to turn a significant profit in short time, and you have money to spare, your risk tolerance will likely be quite high, and you may take some bigger swings, so to speak. By contrast, if your goal is to gradually build up savings over time, and you don’t have much disposable income, you might take a more conservative approach to your market of choice.

Plan to Diversify

Many people think of investing solely as a stock market venture. Today more than ever though, there are multiple markets and assets to choose from when you’re building your portfolio. Rather than picking one asset or market or another, a good rule is to invest in a variety of different assets. You may decide to put part of your money in commodities, another part in foreign exchange, and the third part in traditional stock shares. You might also consider a mutual fund, wherein your contribution will be pooled with those of other investors and traded professionals across a diversified range of assets. Whatever you choose, it’s best to go into your investing with a plan for diversification.

Talking to a Budget Analyst

When a business begins to see consistent profits, it’s common for an owner to look into what the best ways to manage newly acquired funds might be. This is typically where a budget analyst will come into play. A budget analyst is essentially a professional accountant who specializes in crafting strategic budgets, and while we think of people in these roles primarily with regard to how they help companies, they can be of use to you as an individual as well. If finance isn’t your area of expertise, going over your numbers with someone who knows budgeting inside and out can leave you with a much clearer idea of how much you can afford to invest, what your risk tolerance ought to be, and more.

Work with an Investment Adviser

Investing is more than just performing research on different markets and designing a portfolio that makes sense for your needs at the outset. Regardless of your initial plan, or how meticulous your approach may be, there’s always the chance that you’ll forget to account for a given detail, or that market movements will throw your plans out of whack. This is why on a similar note to consulting with a budget analyst, it’s important to work with an investment adviser. Their job is to provide advice regarding investment opportunities, help you to interpret conditions, and in some cases even manage your portfolio directly. People in these roles have years of experience in the markets, and will help you to feel confident that your money is being managed with proper strategy.

Investing has been proven to be a reliable way to make your money grow steadily, provided you know what you’re doing. There are never sure things however, and markets can be particularly tricky to navigate for newcomers. Keep the above considerations in mind when you’re getting started, and you’ll be giving yourself the best chance to succeed.

Register for your free MoneyEdu account using code MYSUNEDU, and take our Saving and Investing course to learn more about how to start building your investment portfolio

May 25, 2022

Published by SunWest Credit Union

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