Have you done your own research to choose your investments? Or, are you going to invest as per your friend’s advice? Do you understand inflation and taxes? Can you do basic investment calculations like calculating the future value of present expenses, monthly investments required to accomplish a goal? Do you understand the difference between insurance and investment? This will give you a sense of whether you can be a DIY investor or need a financial planner or mutual fund advisor to manage your money. If you are going to buy what your friend has bought, or do not understand investment basics, you definitely need help.
What are your financial goals?
Investing can be a hobby for some, but most investors invest to accomplish a goal. Identify your goals like funding a dream vacation, buying a luxury car, and non-negotiable goals like children's education, marriage, and your retirement. Put a figure to each goal. It will give you a sense of how much money you will need to fund different goals at different stages of your life.
How much time do you have?
Once you know the time you have in hand, you can plan your asset allocation. For instance, if you have long period, say, 10 years or more to reach your goal, you can invest in equity mutual funds. But if you don’t have enough time, you will have to stick to safer investment options like bank deposits and debt mutual funds.
What would you do if you get Rs 20 lakh today?
“Such hypothetical situations can help you identify unsaid dreams such as going on a road trip on a Royal Enfield or decorating house interiors,” Tata Mutual Fund said in its recent Simply Simple Newsletter that inspired this slideshow. And if you have the resources, you should try to fulfill the goal via investments.
Do you regret any past mistakes?
Revisiting your past mistakes can help you prevent them in future. If you believe you cannot fix the mistake in future and it’s beyond your control, you definitely need to take help of an expert or a financial planner.
What is your risk profile?
Some investors assume a very vague risk profile like moderately aggressive or conservative to moderate. Some investors with conservative risk profile have investments in mid and small cap mutual funds. This can be devastating for your portfolio and can give you sleepless nights. This will help in choosing suitable funds and other investment products. You can also go through various psychometric tests available online to evaluate your risk profile. For more, read: Are mutual fund investors confused about their risk profile?