- Personal Finance
Tips on when not to invest
when not to invest
We have frequently read on how to invest wisely and regularly either in stock or mutual fund. I reckoned that the importance of proper investment plan being established and followed in order to achieve financial freedom. Nevertheless, there are circumstances which can dissuade a person from investing further. Thus, knowing when not to invest is as important as knowing when to invest. This article will layout some tips on when we should not continue to invest or halting our investment plan temporarily.
Under bad debts
It is unavoidable that everyone will have debts. It is only how well we managed them. There are 2 types of debts, one which is good, while the other one which is bad. Good debts are all the debt that you are able to pay back without taking out your reserved money while bad debts are vice versa. The worst form of bad debt is credit card debt as it will normally incurred very high interest. Assume a person who owned credit card for $10000 and being charged 18% per annum. If that person has $5000 on hand, should he continue to invest in stock or should he prepay back the credit card? Unless he is a professional stock trader who can ensure his investment to be more than 18% per annum, then he can continue to do that. Else it is best to pay back the credit card debt. No one can guarantee the return from investment would definitely be more than 18% per annum as stock market is so volatile. Taking an example of recent happening whereby US debt crisis caused Dow Jones Industrial Average plunging more than 600 points within a day. That huge drop sent shiver up and down the spine of the world market. On that particular day alone, a lot of people lost big portion of their investment money. The mathematic calculation is not rocket science here and it is very obvious that we should pay back any bad debts that we owned owing to high interest. My rule of thumb is that any debt that charges me more than 8%, my first priority would be to pay back that particular debt rather than continue with the investment plan. The same tips go to you. If you are not able to find an investment that can guarantee return higher that the debt interest charge, then you may want to consider payback the debt first, or at least prepay back to certain level before continue your investment.
Not well-equip with knowledge
A lot of investment gurus always stressed that every investor should equipped themselves with knowledge prior to investment. Guess what, they are correct. Without proper gear to go into battlefield, will the soldier survive? Chances are there, but for how long he will survive. That is the big question. A person who invests without knowing well on what he is going to invest is as good as going into casino and gamble. The risk of losing all the money is nine times out of ten. Why do we need to even risk our hard earned money in any form of investment when you just need to spend little time to do some homework prior to making decision? Doing research prior to investment is only requiring less than 1 hour per day. So, do the homework first and you’ll find yourself in better shape.
We need to spend daily in order to maintain our lifestyle. Daily goods like foods, clothes etc is an essential to everyone. In the event you find yourself hard to cope with daily essential needs, then it is time to take a step back and rethinking of continuing to invest. In some circumstances, we will be hit with some sudden spending that might even require you to take out all your reserved money. An example is when family member being hospitalized for chronic disease. In some cases, insurance coverage may not be enough to pay back all the bills. Thus you might be potentially required to fork out huge amount of money for that purpose. Halting your investment plan will be one of the best options until you solve all the problems.
The above tips are just outlining some circumstances that we should either not to invest or just halt our investment plan temporarily. There are other circumstances that I didn’t include that may result in the same manner. The key point is knows when not to invest can help you go a long way in achieving your financial goal.