Hey Reader,

Every great investor has a process to guide their investment decisions.

But with so many personal and financial variables to consider, most people don't know where to start.

I've found that charts and financial analysis rarely lead to useful conclusions. Instead, you need a framework you can apply to your situation.

So, here are 5 simple questions you can ask yourself before making an investment.

1. Why am I making this investment?

• Where did the idea come from? Was it pitched to you?
• Do you believe in the product/company/industry?
• Do you feel like you have a competitive edge?
• Are there personal/emotional attachments?
• Are you following friends/the herd?

If someone asks why you made a particular investment, you should be able to confidently explain your thesis and the process that led you there.

Even if the investment doesn’t pan out, you know the logic behind pursuing it, and now you have new data to refine your process.

2. Is the risk worth the reward

Consider the marginal utility of wealth.

If you live comfortably and you're confident you can achieve your future goals, is the added risk worth the potential for a higher net worth?

Will the potential gain materially impact your life?

Remember that all investments have some form of downside risk to consider.

3. What happens to my financial plan if this investment goes to zero?

Our overconfidence bias makes us believe our investments are immune to failure, but every investment has risks, especially those with high expected returns.

If the investment goes to zero and it won't impact your plan, refer to #2 and consider whether the potential return outweighs other investments with less risk/return.​

If your plan is negatively impacted, are you willing to adjust your goals/lifestyle to compensate?

4. When and why will I sell this investment?

Knowing when to buy is only part of the equation. You need to know when to get out to turn your paper gain into real money.

You need to establish criteria for selling the investment in advance.

For example:

• Business cycle
• Target price point
• Economic indicators
• Company acquisition
• Company market cap
• Government regulation
• Change in company leadership

Identifying criteria ahead of time will help you avoid acting on emotion in the future.

5. What is the expected timeframe to recoup my investment?

If you could look into the future and see that the investment with an expected 5-year timeframe turns out to be 10 years, how would that influence your decision?

Be conservative in your timing expectations.

Make sure you're comfortable with the expected and elongated investment timeframes and that you aren't banking on a big return at the end to make up for a lack of savings.

Remember to consider your personal liquidity.

If you're making an illiquid investment in real estate, a startup, or an opportunity zone, do you still have liquid reserves for emergencies and short to intermediate-term goals?

Conclusion

I hope you can use these questions to create a repeatable process and become a better investor.

If you're wondering how your investment strategy fits your financial plan:

Have a great rest of your week!

- Matt Garasic

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Disclaimer:

This is for general educational and illustration purposes only. This should not be taken as individual investment, tax, or legal advice.

Consult your legal, tax, and financial team before implementing any financial strategies for your specific circumstances.