Ask Yourself, “Do I Understand This?” Before You Invest in Anything
You will be asked to invest in many long-term endeavors in your life. A house, a car, a retirement plan, and even a TV are all investments. Before you start, however, ask yourself if you really understand what you are getting yourself into.
As personal finance site Mom and Dad Money explains, you don’t have to understand every detail of the entire industry to be able to buy anything, but understanding how something works at a basic level should be a prerequisite for investing in it. If no one has adequately explained how door-to-door selling steak knives will make you a millionaire, you probably shouldn’t get involved. Before investing in something, make sure that the person who tells you about it can explain it in the way you understand it:
I don’t care how good something sounds. If I don’t fully understand how it works, I will not invest money in it.
If an investment cannot be clearly explained, it means one of two things:
- The explainer does not understand this either, or
- There is something about an investment that a person is trying to hide.
It’s very easy to get carried away with something because it’s like what everyone is doing, like buying a house. However, in any industry, there is probably someone who hopes to make quick money from someone who does not follow the terms of their investments too closely. Taking the time to understand what you are investing in is not just good discipline; it is protection against abuse.
8 Questions to Ask Yourself Before Investing | Money for Mom and Dad through Rockstar Finance