The Motley Fool

How do you know when it’s time to invest?

We all hear a lot about investing, but how do you know when it’s the right time? There are plenty of other things you could do with your money, after all.

Here’s an easy checklist to work through to help you know if it’s time to invest.

1. You’ve paid off high interest debts

If you have high interest debts such as credit cards, personal loans, or car loans, you should focus on paying these off as a priority. Interest payments can seriously eat into your income and inhibit your ability to save. If you’re not sure where to start, make a list of your debts and the interest rate that applies to each. See if you can consolidate them into a lower rate loan and then focus on paying this down. If you can’t, prioritise paying down your highest interest debts first.

2. You’ve thought about your goals

Spend some time thinking about why you want to invest. What are your long term financial goals? It might be to save for retirement, build a second income stream, generate a house deposit, or many other things. If you are thinking of investing in the share market you should have a time horizon of at least 5 to 7 years to allow you to ride out any fluctuations in the market. Your goals and time horizon will influence how you invest. Your investment style will also be influenced by your risk tolerance – that is, how much risk you are willing to take on for a potentially higher return.

3. You’ve got a plan

Sketch out your plan for putting your investment project into action. Consider how much time and effort you have available to spend monitoring your portfolio. If you have don’t have much time and would like quick access to a diversified portfolio, exchange traded funds such as the Vanguard Australian Shares Index ETF (ASX: VAS) or the Betashares Australia 200 ETF (ASX: A200) may suit.

4. You’ve looked at your options

If you prefer to take a more active role in portfolio management, you will need to investigate what type of shares suit your goals. If you are looking to generate a second income stream then you will most likely look to shares that have a reliable track record of paying dividends. These may include Washington H Soul Pattinson & Co Ltd (ASX: SOL), AGL Energy Limited (ASX: AGL) and Commonwealth Bank of Australia (ASX: CBA). If you are looking to build your net wealth through capital gains you will most likely look for shares with potential for price uplift. These could include Altium Limited (ASX: ALU), The A2 Milk Company Ltd (ASX: A2M), and Nearmap Ltd (ASX: NEA).

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Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of A2 Milk and Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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