checklist before you invest

A checklist before you invest?

Yeah, you read that right. In this post, I’m going to explain to you the checklist that I have used before starting my investment journey. These steps will make sure you have the basic knowledge of investing in markets and in choosing the right asset class for you.

While the below listed may not be an exhaustive list, these are some of the important points to take note of before deciding to invest.

Have An Emergency Fund

First things first, make sure that you have an emergency fund, that is at least enough to cover your monthly expenses for the next 3-6 months.

An emergency fund is to tide over any short term financial needs. Once you start to invest, remember that your investment may not be only going up in value, it may be in loss for some time. Thus, to prevent selling your investment at a loss to pay for the short term needs, make sure that you have that emergency fund.

In case you are an employee and lose your job, this fund will help to pay your expenses while you are finding a job.

Have No Or Manageable Debt

If you have a lot of debt that is of high interest, do remember to pay them off before jumping into investment. This is to ensure that you don’t lose payments on interest over the debt.

Remember to check out the previous post I have written on good and bad debt. It’s ok to invest while you still have a Low-interest mortgage loan.

Otherwise, always remember to pay up your debt before you start investing.

Have Adequate Insurance Coverage

Having adequate insurance is to help preserve your wealth. Imagine you put most of the buffer money into the stock market and a medical need arises when your investments are not doing well? Or even if it’s in profit but u have to liquidate to pay for your bills?.

Regardless of whether you invest or not, it is important to have insurance coverage. Here is a post where I wrote about the importance of insurance.

Why you should have Insurance?

Learn The Basics Of Investing

As you should do your due diligence before you put your hard-earned money anywhere. Remember to understand at least the basics of investment, like the different asset classes available, what is a stock, mutual fund etc…

Having a basic understanding will help you to start investing and not to lose money in the market.

It is also advised to invest in instruments you are capable of understanding. Unless you choose to invest in an index, where you can get the returns of the market.

Read the basics of asset classes here.

Assess Your Risk Profile

Having a good understanding of your risk tolerance is very important. This will help to understand how much are you willing to lose in the short term. It will also help to understand how well you can sleep if your investment returns are negative.

It is important not to stress over the short term negative returns. so, understand the characteristics of the asset class you choose and how well it’s performed.

Also, remember that all kinds of investments come with risk and there is a potential to lose your invested amount in full or part of it.

Decide Your Investment Horizon

Another factor to consider is the period you are looking to invest your money, for some it could be for retirement. For some others, the money is required after a few years. If you are in the latter category, be sure to only put your money in lesser riskier assets.

If you are investing for your retirement and you are in your 20’s or 30’s, you have the time for your help.

Even if the stocks you picked up crashed, you may have the time to wait for the market to recover before you pull out your money.

If you need your capital in say and year time, only invest it into short term securities. This way you will have a greater assurance that you will be able to avail the capital invested when you are in need.

Choose An Investing Strategy

There are 3 main investment strategies, and these are listed below. Read carefully and decide which one you prefer based on your nature.

  • Timing the market

Timing the market is the same as the popular saying of buying Low sell high. No one can predict the directions of the stock market consistently over a period. With timing the market, you will be waiting on the side and deploy your cash only when it crashes or at the bottoms of the Baer market.

If you miss the exact trading days where it was the bottom, you will be underperforming the market as a whole. You will wish to have invested and waited for the market returns.

Time in the market is important than timing the market.

  • Dollar-cost averaging

Another popular strategy is to do a dollar-cost average into the index or the stock of your preference. This way you don’t need to time the market, you pick an amount that you are willing to invest in on a weekly, monthly, quarterly basis.

You will be buying the stock at the specific dates for the specific amounts. If the stock is trading above your average price paid in the past – you may be getting a lesser number of stocks. Otherwise, you will get more units/stock and it will also average your code down.

As long as you pick a good investment, the prices should go up in the next 5,10 years and beyond. When you will do good and infant better than those who failed to time the market timely.

  • Lump-sum investing

Lump-sum investing is accumulating the capital to a bigger sum and deploying it to the markets as you wish. Hoping that the market will go up from the point of your investment.

I would not prefer doing this, as the chances of me getting into stocks at the bottom of the market is very difficult.

Even if you manage to predict the direction one time, it may not be sustainable over time.

Choose Brokerage Account

Another important consideration is your broker of choice. Most of the traditional brokerages charge hefty fees for trading. Depending n the country you are living in and investing in, choose a broker that charges you as little as possible. Do also remember to use a broker that is trustworthy and has the necessary credentials.

The problem with paying too much in commission is that you will lose a big amount from your returns as you pay commissions.

Spend some time comparing the different offerings from the brokers, choose what fits best for your investments.

Do also check if there are other fees involved in trading in the country you are living in.

Demat Account/Custodian Account

Depending on the country you are living in, there could be different choices on where you want can hold your investments.

It is pretty much like a bank account, but you will be storing your stocks and funds in this account. The 2 types are the Demat account and custodian account.

  • Demat account

Demat account is also known as a central depository account, this account will be under your name. It will store the stocks and bonds you buy. With this arrangement, you can buy stocks with one broker and sell with another in the future.

If your country only allows this option, then no choice not to open an account for yourself. With the internet era, this account opening should be as fast as your bank account opening.

  • Custodian Account

This is another arrangement that you can ave for holding your stock. You can store your stock with a custodian bank of your brokers choosing. With this, you will only be able to buy and sell through the same broker. Ensure that your broker and custodian are trustworthy.

Your custodian should be depositing your money and stocks to this separate account. In the event your broker ceases the operations, your stocks and money will be safer this way.

Do also check if there are any fees charged for custodial services.


With this simple checklist, I hope you have an improved understanding of important points to note before investing.

Remember the words of the wealthiest investor of all time, Warren buffet – “No 1 rule of investing is not to lose money, no 2 is to always remember rule 1”.

Invest safely 😀





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