Things to Consider Before Investing

Posted on by Jennifer Brazer
Private Business Investing - Complete Controller

Key Considerations for Smart Investing Decisions

The most important things to consider before investing are your financial goals, risk tolerance, investment timeframe, understanding of the investment, and how diversification and costs will impact your returns. Before making any investment, review your current finances, build an emergency fund, and thoroughly research fees, risks, and whether you’re comfortable potentially losing some or all of your investment.

As someone who’s guided entrepreneurs and business owners through financial decisions for over two decades at Complete Controller, I know that smart investing extends far beyond picking stocks or funds. The difference between regret and reward often comes down to asking the right questions—and insisting on full transparency from every adviser or product you consider. In this article, you’ll discover the seven critical factors that successful investors evaluate before committing their money, learn how to spot the warning signs of bad investments, and gain practical strategies for building a portfolio that aligns with your life goals while protecting your hard-earned wealth. Complete Controller. America’s Bookkeeping Experts

What are the things to consider before investing?

  • The key things to consider before investing are understanding your financial goals, risk tolerance, investment timeframe, knowledge of the investment, fees, and portfolio diversification.
  • Identify your short- and long-term financial goals to shape your investment choices.
  • Assess your willingness and capacity to take on risk–know what loss you can truly absorb.
  • Understand how your chosen investment works, including potential returns, fees, and risks.
  • Build an emergency fund and address any high-interest debt before investing.

Define Your Financial Goals: The Foundation of Every Investment

Clarity on your goals stands as the first and most important step in the investing process. Are you investing for retirement, building wealth, buying a home, or funding children’s education?

Goals without structure tend to drift. That’s why successful investors use the SMART framework to transform vague wishes into actionable targets. Specific goals like “save $100,000 for a down payment in 5 years” carry more power than general desires to “build wealth.” Measurable benchmarks let you track progress monthly and annually. Achievable targets ground your aspirations in the reality of your income and obligations. Relevant investments align with your personal and family priorities. Time-bound deadlines help select the right investment products for your horizon.

Your investment time horizon dramatically shapes appropriate strategies. Long timeframes of 10+ years favor higher-risk, growth-oriented investments that can weather short-term volatility. Shorter goals under 5 years require more liquid and stable vehicles to preserve capital. The stock market might deliver 10% average annual returns over decades, but if you need money for a house down payment next year, those historical averages won’t protect you from a sudden 20% drop.

Know Your Risk Tolerance—And Your Risk Capacity

Every investment carries risk, from the safest government bonds to the most speculative cryptocurrencies. Understanding both your emotional tolerance for loss and your actual financial capacity to withstand setbacks proves essential for investment success.

Risk tolerance measures how much volatility you can emotionally handle without making rash decisions. Risk capacity examines how much risk your finances can bear without jeopardizing your broader well-being. These two factors often diverge—you might feel comfortable with market swings emotionally but lack the financial cushion to absorb actual losses. Higher returns come with higher risk, so balance these elements to suit your life stage and goals.

The 2020 COVID-19 market crash provided a real-world test of risk planning. The S&P 500 plummeted 34% in just 33 days during March 2020. Many investors panic-sold at the bottom, locking in devastating losses. Those with realistic risk plans and emergency funds stayed invested and benefited from the subsequent recovery—the market gained 70% over the following year. This stark difference highlights why understanding your true risk tolerance before crisis strikes can save your financial future.

Understand What You’re Buying: Never Invest in Confusion

Invest only in what you fully understand. If you can’t explain how you’ll make (or lose) money in simple terms, you shouldn’t proceed with that investment.

Product transparency starts with reading the prospectus, offering circular, or fact sheet before purchase. These documents reveal fees, lock-up periods, terms, and risk exposures that salespeople might gloss over. Verify all costs, including management fees, transaction charges, and exit penalties. Know your exit strategy—some investments offer daily liquidity while others lock up funds for years. Understanding redemption terms prevents nasty surprises when you need your money.

The crypto fraud epidemic of 2022 offers a sobering lesson about blind investment. Hundreds of investors lost over $20 million to online schemes promising “guaranteed” returns through complex crypto strategies. Basic due diligence would have revealed unregistered operations, missing regulatory filings, and impossible return promises. The FBI reported $9.3 billion in cryptocurrency-related losses in 2024, with older Americans losing $2.8 billion. These victims shared one common trait—they invested in products they didn’t understand.

Build an Emergency Fund and Pay Down High-Interest Debt First

An emergency fund serves as your financial shock absorber, protecting your investments from forced liquidation during life’s inevitable surprises. Investing before creating a safety net leaves you dangerously exposed.

According to Bankrate’s 2025 Emergency Savings Report, only 46% of Americans maintain enough emergency savings to cover three months of expenses. Even more concerning, 24% have no emergency savings at all. This lack of preparation forces people to raid retirement accounts or sell investments at losses when unexpected expenses arise. Keep 3–6 months of expenses in cash or safe, liquid accounts, completely separate from investments. Only invest long-term funds you can afford to set aside without risking daily stability.

Any investment return gets easily wiped out by high-interest credit card debt. With average credit card rates exceeding 20%, paying off these obligations delivers a guaranteed “return” that beats most investment options. A $5,000 credit card balance at 22% interest costs you $1,100 annually—you’d need exceptional investment performance just to break even. Always clear high-cost obligations before putting new money into the market. CorpNet. Start A New Business Now

Diversify to Manage Risk—Don’t Concentrate Your Bets

Diversification remains the single most powerful risk reduction strategy available to investors. Spreading investments across different assets, sectors, and geographies reduces the impact of any single loss and helps smooth overall returns.

Effective diversification goes beyond owning multiple stocks. Blend different asset classes, including stocks, bonds, cash, and alternative investments. Invest across various economic sectors—technology, healthcare, consumer goods, utilities. When feasible, add geographic diversification through international investments. Rebalance periodically to maintain your target allocation as market movements shift your holdings.

The 2008 financial crisis taught painful lessons about both the power and limits of diversification. Portfolios heavily concentrated in financial stocks or real estate suffered devastating 50-70% losses. Well-diversified portfolios containing stocks, bonds, international assets, and commodities experienced more manageable 15-20% declines. While diversification couldn’t prevent losses entirely—many asset classes fell together during the extreme stress—diversified investors recovered much faster than those with concentrated holdings. Yale University’s endowment, famous for its diversification across traditional and alternative assets, weathered the storm better than most institutional investors.

Count the Costs: Fees, Taxes, and Hidden Expenses Matter More Than You Think

Investment returns often get silently eroded by hidden or poorly disclosed costs. Every fee directly reduces your wealth accumulation potential over time.

Research from Mezzi demonstrates the shocking long-term impact of fees. On a $100,000 portfolio growing at 7% annually over 30 years, paying just 1% in annual fees costs you $186,877 in lost wealth. The no-fee portfolio grows to $761,230 while the fee-paying portfolio reaches only $574,353. For larger portfolios, a single 1% advisor fee could cost over $1 million across three decades. Even seemingly small fees compound dramatically—that “insignificant” 0.25% difference between funds translates to tens of thousands in retirement.

Smart investors ask pointed questions before committing funds. Request a complete fee breakdown, including management expenses, transaction costs, account maintenance charges, and exit fees. Demand real examples showing how fees impact returns over 10, 20, and 30 years. Compare similar products across different platforms—fee variations for identical strategies can exceed 1% annually. Take advantage of tax-advantaged accounts like 401(k)s and IRAs for greater after-tax growth.

Avoid Scams and Unlicensed Sellers—Trust Must Be Earned

Investment fraud has reached crisis levels. The Federal Trade Commission reported consumers lost over $12.5 billion to fraud in 2024—a 25% increase from 2023. Investment scams alone accounted for $5.7 billion in losses, making them the single largest fraud category.

Red flags for fraud follow predictable patterns. Promises of “guaranteed” high returns with no risk should trigger immediate skepticism. Pressure to invest immediately prevents proper due diligence. Legitimate investments provide detailed prospectuses and documentation—scammers offer vague promises and slick presentations. Unregistered advisers or platforms operate outside regulatory oversight. Complex strategies you can’t understand often hide fraudulent activity.

Verification takes minutes but saves fortunes. Use Investor.gov to check adviser credentials and disciplinary history. Search FINRA’s database for broker backgrounds and complaints. Verify investment products through official regulatory filings. If basic questions about fees, risks, or liquidity aren’t answered promptly and clearly, walk away. Trust must be earned through transparency, not claimed through smooth talking.

Final Thoughts

After two decades helping business owners navigate financial decisions at Complete Controller, I’ve learned that successful investing requires discipline, patience, and brutal honesty about your goals and limitations. Smart investors succeed by knowing exactly what they own, why they own it, and what it costs them. They build emergency funds first, understand their risk capacity, and never invest in confusion.

The strategies outlined here—from SMART goal setting to fee analysis to fraud prevention—form the foundation of wealth building. Start with one step: assess your emergency fund. Once that safety net exists, systematically work through each consideration before committing your first investment dollar. Ready to make your money work smarter with expert guidance? Visit Complete Controller for tailored advice and support from our team of financial professionals who understand the unique challenges entrepreneurs face. ADP. Payroll – HR – Benefits

Frequently Asked Questions About Things to Consider Before Investing

What is the first thing to consider before investing?

Determine your personal and financial goals to guide investment decisions. Clear objectives like retirement funding, home purchases, or wealth building shape every subsequent choice from risk tolerance to investment selection.

How much money should I have saved before investing?

Aim for an emergency fund covering 3-6 months’ expenses before allocating additional funds to investments. This buffer protects you from selling investments at losses during financial emergencies.

How do I assess my investment risk tolerance?

Consider your emotional response to losses, your financial capacity to recover from setbacks, and use online risk assessment tools. Many financial advisers offer questionnaires that evaluate both psychological and financial risk factors.

Should I pay off all debts before investing?

Focus on eliminating high-interest debts before investing, as returns rarely outpace these costs. Low-interest debt like mortgages can coexist with investing, but credit card debt averaging 20%+ should take priority.

How do I know if an investment is a scam?

Check adviser credentials through official databases, demand complete documentation, reject “guaranteed” returns, and vet both sellers and offerings using FINRA and Investor.gov. Legitimate investments never pressure immediate decisions or promise risk-free returns.

Sources

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Jennifer Brazer Founder/CEO
Jennifer is the author of From Cubicle to Cloud and Founder/CEO of Complete Controller, a pioneering financial services firm that helps entrepreneurs break free of traditional constraints and scale their businesses to new heights.
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