How much to invest?
Investing is a powerful tool for building wealth on the long run. Before you dive into it, there is one important question to ask yourself: “How much should I invest?”. There is no one size fit all answer. To find a perfect answer, you will need to consider your finances, risk tolerance assessment, and your goals. Here we’ll explore key factors to consider that will help you answering this question:
- Assess your financial situation and set emergency fund
Before you start investing, take a closer look at your money situation. Evaluate your monthly income, expenses and savings. Do you have enough money set aside in case something unexpected happens, like a car breakdown or losing your job? Think about building an emergency fund, like three to six months worth of living expenses. This will help you build strong fundamentals before you start investing. - Set clear financial goals
Define your financial goals that wil help you stay motivated and consistent with investing strategy. Having clear financial goals like, saving up for a house, early retirement or starting a business will help you set a clear plan. - Understand your risk tolerance
Understanding your risk tolerance is crucial when deciding which investing strategy will work best for you and your goals. Try to imagine how would you feel if your portfolio drops 20% in one day? Do you feel anxious and want to pull everything out? If yes, you might want to consider a less risky strategy. You can always increase the risk later on, if you find it’s more manageable than you thought. - Start small and consistent
Consider starting small. Regular contributions, even if they are modest, can accumulate over time. This approach is called dollar cost averaging and it wil help you navigate market volatility and stay disciplined no matter where the market is headed.
Remember, we are different and so are our investing journeys so there is no need to compare yourself to others. With clearly assessing your financial situation, setting clear financial goals and understanding risk tolerance, you’ll be ready to make smart choices that match your investing goals.
Trade safe!
Nezatron
Image by storyset on Freepik