7 Important Questions to Consider When Planning an Investment

“My experience is that most people who have amassed a large fortune did not set themselves this goal at all. Wealth is just a by-product, not the original motivation.” – Michael Milken, entrepreneur/financier/philanthropist

INVESTING is more than just making money. I am a firm believer in investing with a purpose. My clients often ask me, “When is the best time to invest?” For me, there are far more important questions to ask. Here are seven questions to consider when planning an investment:

Am I ready to invest? Anyone can invest, but in order for the investment process to be worry-free, you need to make sure that the financial basis is strong enough for regular investments to be sustainable. For example, investing is not recommended for those who cannot fully pay off their credit card debt by the due date, and investing is also not recommended for those who do not have a healthy cash flow. It is also recommended that income earners get insurance first before thinking about investing. Thus, in case the breadwinners die too soon, the beneficiaries can still continue the breadwinners’ investment goal.

Why am I investing? When we talk about financial goals, there are usually two aspects: the reward aspect and the monetary aspect. In this question, we will learn the reward aspect of our financial goal. Is it for our gracious pension, or the education of our children? Or is it to keep us healthy when we get old, or is it for my dream home or dream travel plan? After all, it is these rewarding dreams that will make our goals exciting and more meaningful.

What is my investment goal? Whatever dreams/goals we have, most likely they have a monetary value. How much do you need for retirement? How much do you need to build your dream home or send your kids to the best school you can afford? How much will travel around the world cost? All these goals have a monetary value, and in order for us to achieve our useful goals, we need to know their monetary value, otherwise we would blindly invest without knowing where we are going.

Which investment vehicle should I invest in? Investments are not limited to stocks, pooled funds or bonds. Business, for example, is one of the investment vehicles that can give very high returns. Real estate investment can also be a good hedge against inflation and a good investment vehicle that can provide one passive income. Whatever investment you choose, it is important to understand how much risk you can handle. A risk averse person may feel anxious about investing in high risk investments, while a high risk tolerant person may be discouraged by low return investments.

How much do I need to invest? The answer to this question now allows us to build an action plan for our investment planning. This action plan is important because it tells us what we need to do to achieve our goals. However, the answer to this question will depend on 1) the type of investment instrument we have chosen; 2) the amount of time we have; and 3) the monetary value of our goal. Without any of them, it will be difficult to determine the amount that we need to regularly invest.

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How long should I continuously invest? As in the previous question, the answer to this question will depend on the type of investment instrument, the monetary value of the target and the time. However, you need to understand that the closer to the “deadline” of the goal, the more money is required.

What return/yield do I need to achieve my investment goal? Yield and yield may vary depending on the chosen investment instrument. Businesses can potentially give you a return of 30 to 100 percent. While investments in the stock market can earn returns of 10 to 15 percent per year, pooled funds (mutual funds, UITF (Unit Investment Trust Fund), and VUL (Variable Universal Life) investment component) can yield as high as 6 percent. . and 12 percent per annum depending on the type of fund, while bonds can yield 4 to 6 percent per annum.

Yes, investing may be related to our desire to make money, but I believe that in order to live a more meaningful life, we need to look not only at money, but also set meaningful goals. So before we invest, take the time to find out the answers to the questions above. And if you insist on answering the question “When is it better to invest?” I can give a hackneyed answer: in fact, the best time to invest was yesterday, but since we overlooked this, today is the best time, because tomorrow may be too late.

Jeremy Jessley Tan is a Registered RFP Financial Planner in the Philippines. To learn more about personal financial planning, join the 100th RFP in March 2023. To find out, please email. [email protected] or text to 0917-6248110.