Make low-risk investment work for you: 6 step checklist to use before investing
When trying to protect your hard-earned money, it can make a lot of sense to pursue low-risk investment options. Maintaining the wealth you have with the bonus of some return on top of it? Yes please!
Although it can sound easy, it is important to set yourself up for success from the get-go when you invest in a low-risk option. Not every investment is the same. Each will come with its own pros and cons, and while the risk will be low, there are still always risks involved that you should understand before proceeding with any investment.
By following this 6-step checklist, you can quickly and effectively determine if a low-risk is best for you and have the confidence to pursue it:
1. Be certain about your approach
Being certain about your approach is the most important factor when selecting any investment option, but even more so when it comes to low-risk investments. If you are not certain what your approach will offer you and if that is right for you, then you should consider waiting until a better opportunity arises.
2. Know your actual risk
Low risk investments always sound great at first. They also serve a valuable purpose for many investors. There is always risk with any form of investment and it is important to make sure that the risk you take with your selected low risk investment option is indeed something you are comfortable with before getting started with it.
3. Understand your level of control
Every investment comes with different levels of control. This can vary greatly depending on the investment type, as well as the servicer of said investment. Be sure to understand exactly what level of control you will hold during the lifetime of the investment and what that control grants you the ability to do before you invest your money.
4. Identify how it fits into your portfolio
Investing for the sake of investing can be counterintuitive to the rest of your financial plan and approach if it does not align accordingly. It is good to evaluate your entire portfolio before making any new investment to make sure it will compliment all your existing plans and not unintentionally harm your progress.
5. Analyze possible options for liquidity
Many low-risk investments achieve their decreased risk in ways that make liquidity less possible. Some even contractually prevent liquidating the investment prior to a certain point or penalize you for early liquidation. As a result, it can be good to analyze the possible options for liquidity and ensure that fits your needs before funding your low-risk investment.
6. Calculate your time horizon
Every investment is designed to cover a certain time. Some can be much longer or shorter than others. Before investing your money, be sure that your low-risk investment has a time horizon that matches your needs, especially if you have specific time sensitive goals.
