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SIX QUESTIONS YOU NEED TO ASK BEFORE YOU INVEST

Updated: 2 days ago

First things first, investing should help you meet your personal objective.


Keep that thought in the back of your mind when assessing any investment opportunity. Regardless of how exciting, cutting edge or interesting the proposition might be, you have to remember what your big-picture goal is and whether this opportunity will help you get there.


1. WHAT EXACTLY IS BEING RECOMMENDED, AND WHY?

Investments are products just as much as a car or washing machine is a product. You’d always choose a make and model that suits your circumstances wouldn’t you? It should be no different when it comes to the investment product.


2. WHAT ARE THE RISKS?

All too often the brochures promoting investment products gloss over the risks and pass the responsibility to you to get independent legal, tax and financial advice. It is your responsibility to consider the risks, and you will be asked to sign something to this effect. 


3. WHAT ARE THE EXACT FEES, CHARGES AND COMMISSIONS?

Remember that fees and charges reduce your return, if there is one, so it is very important to know what they are. Fees for investment funds wrapped up by life companies can cost up to 3% per year. If your fund grows by 3%, your net return is nil. Take inflation into consideration, you have now lost money on your investment.


It’s also important for you to know how much the salesperson is making by way of commission. You may feel happy that he or she is being paid a fee by the investment company – it’s not coming out of your fund after all. Be under no illusion; you are paying for these commissions in your fees. 


4. ARE THERE FEES ASSOCIATED WITH EARLY WITHDRAWAL?

If you don’t have a rainy day fund and some kind of disaster falls, you may need to access the investment. Is there a penalty for cashing it in, or partly encashing it, prematurely? 


5. IS THERE ANY GEARING OR LENDING INVOLVED?

A third-party lender is involved in a geared investment, which increases the level of risk. That third-party could call in the loan when certain circumstances occur. If there is not enough money in the pot at that moment, the investment is gone. Read my blog on AIB’s Belfry funds for a textbook example of a geared investment gone wrong.


And now a question for you to ask yourself when considering any investment:


6. HOW DIVERSIFIED IS MY PORTFOLIO, AND WHAT WILL THIS INVESTMENT DO TO IT?

Banks and investment houses usually gravitate towards investments based on current and popular trends, not so much on diversification, with potentially significant repercussions. Make sure you have various asset classes in your portfolio (stocks, property, cash/bonds) and are not overly exposed to any one class.


As always, give me a shout if you’d like to discuss any aspect to your investments.

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