Key Questions To Ask Before You Invest

TruePoint Capital

If the last year taught anything, it’s to be prepared for everything. Many who weren’t prepared for the pandemic-induced hardships in 2020 likely didn’t ask themselves the right questions to prepare for such a disaster:​

  • ​What if I lose my job?
  • ​What if my income is reduced?
  • ​Do I have a backup plan?

​​I bet if everyone had asked themselves those three basic questions, many would have avoided the hardships from the economic fallout of the pandemic.

With investments, it’s important to ask yourself key questions before you invest to ensure making smart investments and to be prepared. Prepared for what? You can name a host of things, but retirement, hard times, a future not dependent on a job all come to mind.

Here are important questions to ask of yourself and your potential investment opportunity before investing.


What is my investment objective?  STOP!

If your investment objective is to speculate, then go no further. There is no point in continuing with the remaining questions. Speculating is gambling and if your goal is to gamble on the stock market or cryptocurrency, then have at it. I can’t offer you any other advice because you’re no better off than if you were gambling on the Las Vegas strip or buying a lottery ticket.

Suppose you have higher investment objectives, such as building and maintaining wealth. In that case, the answers to the following questions will aid you in identifying opportunities that will guide you towards that end.


Is the investment one that I understand? One of Warren Buffett’s first rules of investing is to invest in what you understand. That’s because when you invest in something you understand, it’s hard for any unscrupulous promoters to pull the wool over your eyes. More importantly, you’re more able to analyze the opportunity and data to make informed decisions. That’s why you should invest in assets you understand.

Do I have to monitor or manage the investment? Besides contributing capital, will you be required to contribute in any other way? Do you need to manage any part of the asset or the execution of the business plan? Suppose the investment you’re considering will require you to contribute ongoing time and effort to the venture. In that case, you’ll have to ask yourself if this type of investment will help you achieve your goal of one day achieving financial freedom or if you’re replacing one job for another.

Only passive investments that work for you while you sleep will allow you to supplement and eventually replace the income from your day job.

Will the investment create additional stream(s) of income? More specifically, will the investment provide you with reliable, consistent income? Don’t be satisfied with just the hope of a potential return in the future from appreciation. Passive income streams are the key to building and maintaining wealth, as this income can either be reinvested to grow current income streams or create additional ones.

What is the annual return on investment? If the promoters or the offering materials provided in connection with an opportunity can answer this question with any degree of confidence, then you’re in relatively good hands. Some investments are debt investments offering fixed returns that guarantee an annual return. Others are equity investments that put investors first by offering first-dollar preferred returns calculated based on a fixed percentage of the investors’ capital commitments.

Having an annual return on investment allows for planning and projections into the future. It helps in the planning for future contingencies such as hardships and job loss.

How soon will I receive the first distribution? The answer to this question is important because it addresses management’s planning, preparedness, and projections. Be wary of first distributions that appear too early and sound unrealistic. It’s better to be given realistic projections for the first distribution than to be misled.

What is the exit strategy? This question goes hand in hand with the previous question because it speaks to the details and intricacies of management’s business plan. Does management have clear and concise steps for executing its business plan?

​​Typically, having a clear and concise exit strategy is essential to any competent business plan. Be wary of open-ended exit strategies. It typically indicates a lack of a clear plan.

Besides income/cash flow, does the investment offer additional monetary benefits? Investments that offer participation in growth and income are key elements for growing and maintaining wealth long-term because appreciation adds an element for compounding wealth.

​​If the opportunity offers tax benefits, keeping more of what you make is just as valuable as adding additional income streams.

How will inflation affect income and growth? Investments that fail to keep pace with inflation will erode wealth, not grow it. For example, putting money in fixed income assets such as CDs, treasuries, and money market accounts that fail to keep pace with inflation will erode your wealth as your buying power is diminished, however, there will always be assets considered essential in every inflationary environment offering returns that keep pace or even exceed inflation.

​​Consumers will always need food, shelter, and fuel, so assets tied to those essential goods are good hedges against inflation.

Do my potential partners have a track record of success? Do the principals have experience in the particular asset class in which they’re asking you to invest? If so, have they had success in that class? Beware of rookies.

​​Management experience, expertise, and track record are primary keys to successful passive investments. Entrusting your capital and trust in the right hands will make the difference between success and failure.

  • Will you be prepared for retirement?
  • ​Will you be able to walk away from your job one day at a time of your choosing and on your terms?
  • ​Will you be able to withstand inflation, job loss, and an economic downturn?

Asking these questions will put you on the path to being prepared for these events. However, asking the specific questions presented herein will put you on the path to creating and maintaining the kind of wealth that will prepare you for hardships, to walk away from your job, and for retirement.