Ask Yourself ‘Do I Understand This?’ Before Investing In Anything

Ask Yourself ‘Do I Understand This?’ Before Investing In Anything

You’re going to be asked to invest in a lot of long-term things in your life. A house, a car, your superannuation, heck even your TV are all investments. Before you get started, though, ask yourself if you really understand what you’re getting into.

Photo by Al King.

As personal finance site Mum and Dad Money explains, you don’t necessarily have to understand every single detail about an entire industry to be able to buy anything, but understanding how something works on a basic level should be a prerequisite to investing in it. If no one has adequately explained how selling steak knives door to door will make you a millionaire, you probably shouldn’t get involved. Before you invest in something, make sure whoever’s telling you about it can explain it in a way you understand:

I don’t care how good something sounds. If I don’t completely understand how it works, I won’t invest in it.

If an investment can’t be explained clearly, it means one of two things:

  1. The person explaining it doesn’t understand it either, or
  2. There’s something about the investment that the person is trying to hide.

It’s very easy to get wrapped up in something because it seems like the thing everybody does, like buying a house. However, in any industry there’s probably someone out there hoping to make a quick buck off of someone who isn’t looking too closely at the terms of their investment. Taking time to understand what you’re investing in isn’t just a good discipline, it’s protection against being taken advantage of.

8 Questions You Should Ask Yourself Before Investing in Anything [Mum and Dad Money via Rockstar Finance]

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