Investment Tips - Questions to Ask Before You Invest

So you're thinking about investing? Here are the important questions that you should know the answers to before you part with your hard-earned money...

How risky is it?
This should be your FIRST question of any investment opportunity. All investments carry some risk, and you need to be informed about what you['re getting into, so that you can make the best decision for your situation. There's always a trade-off between risk and reward. An investment with higher risk generally offers a higher potential return.

Some investments are protected by the government, making it nearly impossible to lose money. For example savings bonds, and the passbook savings accounts that most banks offer. Our government would pretty much have to collapse for protection on those to fail. But the trade-off is that the interest rate is desperately low on savings accounts, and savings bonds take 17 years to reach their face value.

Using 'safe' investments is generally very slow earnings. The stock market, on the other hand, includes the possibility of doubling your money many times over in a single day (high profit potential), or losing everything in a day (high risk potential). Only you can decide what level of risk-vs-reward you're comfortable with.

What type of earnings will I get?
Different investments pay out in different ways. Some give you interest; a certain percent every certain period of time. Others other dividends; a payment disbursed at certain times of the year. Some stocks will simply pay out with more stock shares. All of these have their place, and which one(s) you prefer will depend on your situation.

How much money will I make?
Bond generally have a fixed rate, so you can know what to expect. Most other types of investments will have interest rates, which vary. That makes it hard to predict what you will earn over time. Be very wary of anyone who promises you a specific outcome on a non-fixed-rate investment.