Investor, Know Thyself

November 30, 2012

With November being financial literacy month, bloggers across Canada are putting forward their best tips from about everything from investment and retirement to financial planning and insurance.

There are no shortage of tips about the latest, greatest investment, but the best thing that an investor can do is come up with a good understanding of their goals and objectives before they make an investment decision.  So investor, my advice to you is to know thyself.  It’s only when you understand where you are and where you want to go that you can draw a proper road map.

To get to know your own personal investment style a little better, here are a few questions to ask yourself:

1) How Comfortable am I with Risk?
Risk is a word that is so overused that it became financial jargon.  Merriam-Webster’s defines risk as “the possibility of loss”.  So if it makes it simpler, use the words interchangeably.  How comfortable are you with loss?  When you invest are you just looking for a great rate of return?  Do you know what a great return would be, given the level of risk that you’re comfortable with?  High rates of return usually go hand in hand with more risk.  A suitable investment should help you comfortably meet your goals, while also letting you sleep at night.

2) What are my Financial Priorities?
Every investor wants to have their money work hard to make more good money.  But in tough economic times, with an economy on the defensive, do you have other goals that could help you come out further ahead?  If you have non-deductible debts and the interest rate is higher, would you ultimately have more money in your hands if the debts were gone?   If you want to own a house, does buying make sense for you over renting and investing the difference?  Financial goals are good, but prioritizing those goals will give you added focus. Debt reduction, home ownership, adequate insurance are all good uses of dollars.  A financial plan with clear priorities help you decide what you should be working on first.

3) Does it Fit with the Long Term Plan?
This is where it all comes together. One day, you will want to stop working.  When you do, what you’ve done or haven’t done today will affect your lifestyle during retirement.  There are few great pensions remaining and government benefits will undergo cuts and revisions in the years to come.  What do you envision your retirement looking like and what will it take to get there?  Investments have a place in every good financial plan, but knowing what you can expect and prioritizing keeps your vision clear.

Sometimes the most important thing to be aware of is that you don’t have to go it alone. If you’re not sure how to set and reach a financial goal, balance a budget, or project your retirement income, we’re here to help.

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