Welcome to the second series of this episode where I’ll be tackling common investment questions which often come to our minds. On today’s episode, I’ll be addressing two enlightening questions.
Question 1: Is it right for me to borrow money to invest?
Answer: Peradventure you hear of a very juicy investment opportunity, and you do not have enough money at your disposal to invest in it, you may likely consider borrowing to make such investment, right? However, there are several things you should look at before taking that step. One, the interest rate. Is the interest rate on the investment much higher than the interest you would be paying back on the loan (if you would be paying interest on the loan)? Two, the uncertainties involved. How risky is the investment? Remember, the higher the potential returns, the higher the risks attached to the investment and vice versa. Hence, it would not be advisable to borrow to invest in a very high-risk investment options and if you would be investing in a not-so-risky investment, you should also have an alternative source of income to pay back the loan in case something still goes wrong with the investment. Three, do you have other cash buffers on ground?
Question 2: How do I know if an investment is right for me?
Answer: Before making any investment, there are certain terms that you should clearly spell out, which include your risk appetite, your investment goals, and your goals, will in turn, help you determine the right time frame of investment you should go with (short-term, medium-term, and long-term). I wrote about all these here. So, next time, an investment opportunity comes dancing at you (lol), ask yourself these three questions- Does my risk appetite permit this? Have I spelt out my goal for this investment? Does this investment match my goal, in terms of risk and time frame?
See you in the next episode!
To your financial independence and freedom!