Investing 101: 5 Questions to Ask Yourself Before Investing
If you're a teenager, you may be eager to start investing as soon as possible. But before you do, it's important to ask yourself some tough questions.
Investing your money can be a great way to secure your financial future, but knowing where to start is not always easy. If you're a teenager, you may be eager to start investing as soon as possible. But before you do, it's important to ask yourself some tough questions. Doing so will help you avoid common mistakes and set yourself up for success. Here are five questions to get you started:
1. What are your financial goals?
Are you looking to save for college? A rainy day fund? A new car? Before you start investing, it's important to have a clear idea of what you're hoping to achieve. That way, you can align your investments with your goals and put yourself in the best position to reach them. Without a goal in mind, it can be easy to make decisions that aren't in your best interests or, worse, lose money.
2. How much risk are you comfortable taking on?
There's no right or wrong answer here—it all depends on your personal preferences. What does this even mean, you may ask?
So, risk appetite is the level of risk you are willing to take to achieve your financial goals. The more risk you take, the greater the potential upside and the greater loss!
Let's say your dad is saving for retirement. He may be willing to take on more risk early in his younger years because he knows that he has time to compensate for any losses. But as he gets closer to retirement age, he might start shifting his investments into less risky options to protect his hard-earned savings.
Some people are more risk-averse than others and are content to let their money grow slowly but surely. Others are willing to take on more risk in pursuit of greater rewards. No matter your stance, it's important, to be honest with yourself about how much risk you're comfortable taking. Good advice would be to start small. That way, you can ensure that your investments match your risk tolerance!
3. What kind of assets are you already investing in?
When evaluating whether or not to make a new investment, it's important to take a look at your existing investments and make sure that the new investment makes sense in the context of everything else that you're invested in. This is especially important for teenagers, who may not have a lot of experience with investing.
For example, if most of your investments are in Ethereum, adding more Ethereum may not diversify your portfolio very much. On the other hand, adding a different cryptocurrency like Bitcoin could help diversify your holdings and protect you if Ethereum tanks.
Diversification is key when it comes to investing—it's one of the best ways to mitigate risk and maximize returns over time. In general, diversification is when you invest in a variety of asset types and do not limit yourself to just one or two. This could include stocks, NFTs, bonds, and more.
For example, let's say you only invest in NFTs. If the NFT market crashes, then your portfolio value will likely drop as well. However, if you diversify your investments and also invest in stocks, you'll still have some money coming in from the other investments even if the NFT market tanks. This can help soften the blow and prevent you from losing everything!
So make sure you carefully consider how a new investment will fit into your overall portfolio before making a decision.
4. Have you done your homework?
Investing isn't something you should do on a whim—doing your research first is important. Otherwise, you could end up making some costly mistakes.
There are plenty of resources out there (including this blog post, Finimize and Investopedia) that can help get you started learning about investing basics. Once you've armed yourself with knowledge, you'll be in a much better position to make sound investment decisions that will help you reach your financial goals.
5. Have you found a trusted mentor?
If not, now might be a good time to find one! A mentor is someone who has a lot of experience in the area you're looking to learn about. Having a mentor can be extremely helpful, especially when it comes to something like investing.
A mentor can be someone like your mum, dad, or teacher. A good mentor will be able to offer guidance, answer your questions, and provide valuable insights based on their own experiences.
If you don't have a mentor, that's OK! There are plenty of other resources out there (such as books, articles, and blog posts) that can teach you about investing. For example, you could join an investment club, sign up for an online course, or even read some books on the subject! Just make sure that you do your research before making any decisions.
Answering these five questions honestly will help set any would-be investor up for success by ensuring they make informed decisions about their money. From there, it becomes far easier to invest confidently without fear of losing everything overnight—and that's when the real fun (and potential profits!) begin!
Do you have any questions or suggestions? Reach out to us on social media - we're always happy to chat!
Doshi is a crypto wallet that allows teens to learn about and explore crypto with supervision from their parents and without the fear of being scammed. You can find out more about our digital crypto wallet suitable for teens here.
The information contained in this article is not financial advice and is for general informational purposes only. Please consult your financial, legal, or tax advisor before making any decisions.
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