You should make sure that you know the answer to these questions prior to your investments. Professional investors always investigate and understand about the various options which they have before they start investing which might lead their capital to risk. Before you face any kind of expensive losses it’s always better to work little harder and get your doubts cleared. It’s very important for everyone to know about their investment with a due diligence which would help you to know much better about the cost of the investment.
Following are the five due diligence questions you should ask yourself or understand before making an investment.
- Is there any possibility of losing money?
As we never know which investment could lead us to loss you should be very careful while choosing an investment. The main rule you should follow is “to never lose money”. Choose the ones with lower risk which means that you lose less when you are wrong and earn more when you are right. The first step which you need to do know before investing is to be aware of the various ways with which you can lose money.
- In which way does this investment benefit me?
You have to make sure to invest in such a way that it would be beneficial for you to achieve your personal and portfolio objectives. Never be a master of all investments. It’s always better to focus on one or two which would be beneficial for you.
- What’s my exit strategy?
Before you go for any of your investment you should know your exit strategy. Like the market, time as well as your objectives changes you should have an idea of how to leave the investment as and when required. Always have an exit plan strategy and never stick to one.
- How does this investment make business sense?
You always invest to get some business out of it. so before you invest you need to check how well the business would work in the market. If the investment doesn’t make any business then there is no point in investing.
- How does the investment affect the risk profile and the mathematical expectancy of my portfolio?
An investment should be added to your portfolio only when it raises your returns or when it lowers the portfolio risk. It would be best if you get both from your investment though.