Kitna Milega? This is the first question most people ask when they are offered a financial product. In this bull market, profitability expectations are at all-time highs, and so are benchmarks. But remember, there is no free lunch in finance, and it never has. The biggest financial mistakes happen in bull markets and eventually end up in bear markets. One of the best ways to avoid making financial mistakes is to ask the right questions. The more you ask before investing, the more peace you will feel after investing the money. Here are 10 questions to ask yourself before investing in any financial product. Answer honestly and you will not be wrong.
Am I being led by FOMO?
New financial product for sale. Everyone buys it. Do you take a bite because others enjoy it? Do not do it. Alpha is never created by buying what others buy at a similar or higher price. Objectives, not FOMOs, should define investment options.
Am I earning much more than the risk-free rate?
If a financial product, especially a debt offering, promises returns well above the current risk-free rate, and that too in consistent manner, it is an immediate warning sign. Carrying debt returns above the risk-free rate. In a low interest rate environment, there is a desire to expand limits of credit risk or term risk to get a slightly higher return. Do not do it. Remember, when investing in debt, the guarantee of capital is the most important thing.
What makes me earn money?
Do I understand why this product will generate income and am I convinced of this argument? Have you made money at similar times in the past? What is past performance, rolling, not absolute? Make sure to check ongoing returns to get realistic performance expectations that aren't affected by a bull market.
Why would I lose money?
When will I lose money and when will I lose a lot of money? Under what market conditions? Find out if the producer has lost money in the past, especially extreme money. Compare whether these situations remind you of anything today.
What value will this add to my portfolio?
Do not buy a product because it has just been launched. You need to fill a need in your wallet and you need to add an offer that you no longer have. Would you buy a third tech fund and thus triple your tech exposure? Or are you really buying something new? Don't overload mutual funds like clothes in the closet!
What will I pay for this?
Do you know the fee structure? Is this product expensive, and if so, is it worth it? Is this product too cheap? If so, what am I missing? It is important to understand and complete the costs and costs in detail.
Why should I lock my money?
If I believe in my money, what will I get in return? How do I get out if something goes wrong? Remember, if you are giving away liquidity, you should get significant additional returns for doing so.
Are there simpler products that have the same risk and reward?
Can I have the same exposure to return risk on a simpler/cheaper/more liquid product? Simplicity is always the preferred choice.
Is the product well regulated?
Do I trust the person/company I give my money to? Have they done well in the past? Do you do reference checks? Why do I trust them? What is my organizational refuge if things go wrong? You must have all the answers. Never buy unregulated products.
What should I check after investing?
It is necessary to monitor investments. Understand the disclosures and information you need to monitor after investing. Ask if it will be available. If there is no transparency, this is a red flag.
Money is hard earned and should always be invested wisely, safely and wisely. Be careful at its highest and remember that there is no bad question.
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