Stop Asking What to Buy: 5 Essential Questions for Smarter Investing
When it comes to investing, one of the most common questions we face is, “What investments do you own?” This question often arises after people view one of our YouTube videos or read our email newsletter, which is now followed by over 60,000 doctors. However, this question is misguided. Instead of focusing on what we own, it’s crucial to ask questions that guide you to become a better investor.
Why Asking ‘What Investments Do You Own?’ Misses the Mark
Asking about specific investments skips crucial steps, similar to bypassing years of foundational training in medical school. Just as your medical education lays the groundwork for your career, understanding the basics of investing is essential. Simply finding out what investments we own might help you pass an “exam,” but you’ll struggle with the real-world test of investing, especially when market fluctuations occur. Without understanding your investments, you’ll likely panic during market downturns. This panic stems from a lack of comprehension about why you own certain investments. It can lead to erratic behavior such as hopping from one strategy to another based on random advice, ultimately damaging your investment returns.
Five Questions to Ask Instead
To set yourself up for successful investing, consider asking these five important questions instead:
1. What is Your Investment Plan and Philosophy?
Your investment philosophy is perhaps the most critical component of your investing journey, yet it is often overlooked. Determine whether you believe in actively managed investments that aim to outperform the market or prefer low-cost passive funds that track the market. Your plan should also define whether your goals are short-term, like covering school fees, or long-term, such as financial freedom in retirement.
2. What is Your Asset Allocation and Risk Management Strategy?
Once you’ve established your philosophy, consider your asset allocation, attitude toward risk, and capacity for risk. Deciding what investments to buy and in what proportions is vital. Understand the differences between risk tolerance and risk capacity before proceeding.
3. Which Tax-Advantaged Accounts Should You Use?
It’s possible to pay little to no tax on your investments. There are even cases where the government might provide tax relief for certain investments. You’ll need to research and understand pension options, ISAs, LISAs, and possibly VCT and EIS, depending on your strategy.
4. What is the Best Investment Platform for You?
To manage your investments, choosing the right platform is essential. While most platforms are efficient, certain ones excel in specific areas. For instance, we use a platform for our children’s junior ISAs with zero fees, while maintaining our adult ISAs on a different one due to cost considerations.
5. Finally: What Investments to Buy?
After working through this step-by-step process, you’ll know what to buy to meet your own financial needs. However, continue to educate yourself at each stage to avoid potential pitfalls. By focusing on these questions and taking the time to educate yourself, you set the foundation for a lifetime of investing success. Explore our recommended resources for further learning in the comments section. Thank you for reading. If you found this post helpful, please hit the like button and subscribe to our newsletter for more insights. We’ll see you next time!
