Investment management: Four questions you should ask before committing to an investment | Infinity Financial Solutions (2024)

Investing is essential for building wealth and securing your financial future but comes with inevitable risks and uncertainties. Whether you’re a seasoned investor or starting, making informed decisions is crucial to achieving your financial goals. We outline four key questions to ask before committing your hard-earned money to any investment.

Investing to build wealth

Whatever you are building wealth for – saving for retirement, funding a child’s university education, or purchasing a second home – successful investing is not about chasing quick returns but about patience, discipline, and a well-thought-out plan tailored to your unique financial situation.

These questions will help you determine whether any investment you are considering is a sound addition to your financial plan.

Is this investment aligned with my financial goals and risk tolerance?

Outlining clear financial goals is a crucial part of the financial planning process because it provides a roadmap for your investment strategy. If you aren’t clear on your goals, you need to rewind and spend some time working them out.

You should also define your risk tolerance based on three factors:

• Risk capacity – the level of financial risk you can afford to take
• Risk requirements – the level of risk necessary to produce a return that will achieve your financial goals from the resources you have available
• Risk tolerance – your ability to cope on an emotional level with the volatility of the market

If you’re unsure how to proceed with clarifying your goals and tolerance to risk, our financial advisers can help.

What is the level of risk associated with this investment?

All investments carry some degree of risk, and a positive return is never guaranteed. However, there is a wide range of products to choose from, from government bonds at the ‘safer’ end of the spectrum to highly volatile individual stocks at the other end.

Working with a reputable investment manager can take the hard work out of assessing the historical performance of investments, expected return on investment (ROI), and performance compared to benchmarks to ascertain how risky an investment is. They will already have done this for you.

Here at Infinity, we work with Evelyn Partners, an award-winning investment company with a 180-year track record! Their expertise and experience in the financial markets is second to none and they propose a range of investment products with risk profiles that vary from defensive to maximum growth. Portfolios are rebalanced quarterly to keep them in line with their risk profile and Evelyn Partners’ views on the market outlook.

Is this good for the diversification of my portfolio?

Diversification is the key to managing risk. Diversification involves spreading investments across different asset classes, industries, geographic regions, and types of securities. This strategy minimises the impact of negative performance in any single investment.

Evaluating whether an investment complements your existing portfolio mix ensures that you maintain a balanced allocation suited to your risk tolerance and financial objectives, ultimately enhancing the resilience and potential profitability of your investments.

Opting for funds, such as mutual funds or exchange-traded funds (ETFs), that pool money from many investors to purchase a wide variety of securities is an easy way to diversify your investments.

Am I being pressured into investing?

A good rule of thumb is never to invest in something that you don’t understand. If you can’t understand how a particular product will help make you money, and the person selling it to you is unable to explain it to you, you should think twice about investing. And remember that if anyone is pitching you a high-return opportunity with little or no risk, it is undoubtedly too good to be true.

As we have seen, investment decisions should be made based on careful consideration of your financial goals, risk tolerance, and how an investment fits into your overall strategy, rather than external pressures. If you feel pressured by a salesperson, adviser, or even by market trends such as falling share prices, take a step back and reassess.

Any reputable financial adviser will allow you the time and space to conduct thorough research and be willing to answer all your questions. If they don’t, it’s a definite red flag.

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Asking the right questions before committing to any investment can save you from making costly mistakes that could derail your financial planning over the long term.

Infinity’s advisers adopt a pragmatic and no-pressure approach to financial planning. They will help you clarify your financial goals, devise a strategy to achieve them, and answer any and all questions you have to ensure that you understand and are comfortable with the investment decisions that you make.

Contact us today to work with a trusted professional who will prioritise your needs!