Quora Answer: What are the Factors to Consider before You Invest, Especially in Long-Term Investments?

The following is my answer to a Quora question: “What are the factors to consider before you invest, especially in long-term investments?”

Here are a few points of consideration.  They are not exhaustive.  When we talk about long term investment, I am assuming we are looking at a 15-year to 20-year horizon, at least.

Firstly, you need to know your risk tolerance.  How much are you prepared to lose?  How much of a drop in value can you tolerate?  This determines the weightage of your portfolio, between debt and equity.

Secondly, how much liquidity do you need?  And, how fast do you foresee yourself needing this liquidity?  This determines the asset classes you invest in, and the weightage.  For example, you may like property, but property is not liquid.  This means you need to consider some of your funds in more liquid asset classes, such as money market, or stocks.

Thirdly, how adventurous are you in terms of asset classes?  Do you have a preference?  Is there something that interests you?  This determines whether you put your funds into something complex like derivatives, or something exotic like precious metals, or something new like cryptocurrency.

Finally, you need to determine what sort of return you would like to aim for at the end of that investment period, the milestones in between, the investment vehicle, and how involved you want to be.

It is a no brainer that you should run investments through a vehicle such as a company or a trust.  This mitigates your tax liability.  It protects your investments from adverse events such as personal bankruptcy.  It might even be preferable to have multiple such vehicles.  The most important consideration is in finding the right financial advisor; the right property agent, if required; the right fund manager; the right tax accountant; and the right investment banker.  You cannot hope to know everything and do it all yourself.