Questions You Should Ask Yourself before Creating an Investment Portfolio

Questions to ask before creating an investment portfolio

When I was growing up I would see my parents and aunts and uncles all with salary slips and on there would be deductions for funeral policies, death cover, insurance, retirement. I'm sure some of y'all know.

It took me years to understand that these were actually investments and this was their portfolio and was because it didn’t make them less broke or lead to financial freedom.

What was the deal with that?

It’s not that people don't invest; it's their approach to investing that holds them back. They buy whatever they are told to buy by the many financial advisors that come to their companies or by their friends.

They join the pension scheme at work; buy the funeral policy their friend is selling, but what's the strategy behind all this?

When you look back in 20 years, how much money do you want in your portfolio?

Successful investors, are not all high earners, they’re just self-aware and emotionally intelligent in that they know exactly why they are investing, what risk they can take on, how much they want to have by x date and then they go about creating a strategy that takes all these things into account.

When it comes to investing - it’s all about what you do with what you have not just how much you have to invest.

So before you even start investing and creating a portfolio here are some questions to ask yourself is:

1. Why the heck do I even want to invest?

What's your end game? Are you investing for the short term or the long term?

Time is one the most crucial keys to investing - investing is a time game.

This may sound irrelevant but it will inform the investment vehicle you choose. If you will only need your money in 20 years you can put it in 15 or 20 year endowments and invest a lot less every month. You may even want consider buy to hold/rent strategies in real estate.

On the other hand if you will need lots of money in 3 years - then maybe endowments are not for you. Maybe your portfolio should be more liquid and more risky (easy to buy and sell)?

2. What risk do you want take on?

Everyone has a different risk appetite and that risk appetite is also tied to your level patience as an investor.

The general rule of thumb is the more risk you take on, the higher your return on investment.

The risk you're willing to take on will determine what you invest in. Shares are riskier than unit trusts. Unit trusts and mutual funds are generally riskier than government bonds.

3. How much money do you want to have by a given date?

How much do you want to grow your money by in a set amount of time?

If you want your money to grow really fast in a short space of time then be aware that you have to be willing to take on more risk and this will also influence how your portfolio is structured.

The next question to ask yourself is: what are you going to do with that investment when it comes due. Are you going to reinvest it or is that money going be used for something else?

Knowing how much money you want by a set date also helps you figure out how much you should invest every month, given the rate of return you will earn.

4. What do you really want?

I ask this in "The Holistic Wealth Manifesto".

If you don't know what you want then you’ll have a hard time figuring out the amount you need to finance said lifestyle and the return you want and that will affect the way you structure your investment portfolio.

Let me know your thoughts in the comments section below.