When you look back at the financial scams and how people were fooled, then you may easily notice the basic homework of investing was missing. It may be any product over any geographical area. But the this reality exists. So why people so eager to invest before thinking twice or doing their homework?
With little knowledge of financial literacy you can easily stay away from such schemes. So what are those basic things that will always guide you in proper investments? The three basic questions of any decisions applies to financial investments too and those are-Why, When and How. Let us see in detail each one.
Why-When any product launched then you need to ask yourself, is the product offering is really suitable for your risk and financial needs. Like recent line up of few NBFCs debentures and FDs may attract you more than other products. But few products have hidden costs or terms which you need to be aware before investing. Just going through your advisers opinion and investing may sometime costly for you. Whenever you want to decide to invest, it is very important to know in advance reason of your investment. This “why” will make you to work on further steps of homework. If you dont know why you are investing then you may end up in financial problems.
When-The next important question you need to ask yourself will be when that product will give you returns. Because each product have time frame. Some products are long term in nature and if you invest in such products then when you actually need the financial support at that time you may miss the bus. So always look for time horizon of your investment. Their may be some risks associated with time horizon for example, shorter period have less risk and longer period have more risk. You need to analyse those things too when considering the product and it’s time horizon.
How-First thing usually investors look for is, return on investment. Think twice how they will generate this return on your investment and will give back to you in future. Return is always directly proportional to risk. So high returns are always associated with risk. You need to analyze yourself like, whether you are ready to take those risks or not. Usually financial scams happen due to lure of high returns. People tend to attract with such returns. But never thinks how these products can generate such high returns and where they will invest your money to generate such high returns. Blindly following will really cost you in future.
Hope these few basic questioning style will really help investors.