Don’t Ask “What” To Invest In, Ask “Why”

When it comes to “what to invest in”, everyone has an opinion. Whether it’s the best stock to buy, or the best property to invest in, or even the best currency to hold. And that is perfectly fine, because everyone is entitled to an opinion.

What is frustrating however is that professional advisors are often quick to provide a long list of recommendations, even before considering an individual’s circumstances. When was the last time you were asked, “why are you investing?”

People need to focus less on “what” (i.e. what to invest in) and more on “why” (i.e. why invest?). Are you investing because you want a stable income stream or are you looking to achieve significant wealth accumulation? Are you investing because you want to buy a house in five years time, or to go on that 6 month vacation next year, or just simply because you want some money put aside for rainy days?

The answer to your “why” can often provide a guide to the type of investments you should aim to hold.

Here are three things you should consider before asking “what” to invest in.

Why You Invest in What You Invest

1 – Your investment time horizon

How long can you put your money away for? Generally, the longer you can put aside your money, the better your ability to take on risky investments.

2 – Your risk appetite

How stressed out do you get when you start losing money? Always err on the side of conservatism as most people overestimate their ability to handle losses. Obviously, the less comfortable you are in losing money, the less you should invest in risky asset.

3 – Your job security, and how it correlates to your investments

Many people (even professionals) fail to consider this. If you hold a stable job, you are better able to handle temporary fluctuations in your investments.  On the contrary, if you work full-time as a real estate agent and derive much of your income from successfully selling properties, it’s probably not a good idea to also invest a signification portion of your wealth in property.

This guest post was written by Ching, the founder of iMoney.my, a price comparison website for Malaysians. Ching is a CFA charterholder, and was formerly an investment consultant and wealth advisor.

This Post Has One Comment

  1. Nice one! Even some professionals cannot answer the “why”! 🙂

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