How to make an informed investment decision: a 10-question check

What is the Ten Before You Pay check?

The Ten Before You Pay check is a list of ten questions to answer in writing before you invest in anything. They cover the product, its risks and costs, your way out, your fit, the safety of your money and your own reasoning. If you can't answer one, you're not ready yet, and you know what to find out.

Questions 7 and 8 are stop questions: if either answer is unclear, don't pay anything. A gap anywhere else means 'not yet': find the answer, then come back.

How do you know what you're actually buying?

You know what you're buying when you can explain it in your own words: what you would own, and how it's meant to make money. Shares pay through dividends and price changes, bonds through interest, and funds through whatever they hold. If the money comes from something you can't see or check, treat that as a warning.

Write question 1 as if explaining it to a friend: 'a fund holding shares in hundreds of large companies' is an answer; 'a smart growth strategy' isn't.

Question 2 is where many scams fail. Every genuine investment earns from something you can name: interest, dividends, rent or a change in price. A promised fixed return with no clear source, or one that depends on new investors joining, is the shape of a fraud, as our lesson on investment fraud red flags explains.

What can go wrong with an investment?

Most investments can go wrong in a handful of ways: prices can fall, sometimes a long way; income can be cut; you may not be able to sell when you want; the firm or issuer can fail; currency moves can cut the value; and fees eat into what's left. Ask which of these apply, and how badly.

• Market risk: prices fall, and may stay down for years.
• Concentration: too much rides on one company, sector, region or coin.
• Liquidity: you can't sell quickly, or only at a poor price.
• Default: a borrower doesn't pay the interest or the money back.
• Firm failure or fraud: the business holding your money fails or isn't what it claims.
• Currency: an investment priced in another currency loses value when converted back.
• Borrowed money: products that use borrowing can lose more than you put in.

Is it spread out? Owning one company, sector or coin multiplies the effect of a single failure. Funds spread money across many holdings, but check what they actually hold: two funds with different names can own much the same things.

For each risk that applies, write one line on what it would mean for you in money. That links question 3 to question 9.

What should you know about costs and getting out?

Before you buy, know the total yearly cost in money and the exact way out: how to sell, how long it takes, whether there's a notice period, lock-in or exit charge, and whether withdrawals go only to an account in your own name. A product that's easy to get into and hard to leave deserves extra suspicion.

For costs, add up every layer at the amount you'd invest; our lesson on how investment fees work shows how, with a worked illustration.

For the exit, read the terms, not the brochure: some products can be sold on any working day, while others lock money away or charge a penalty for leaving early. A demand for new money before you can withdraw your own is never a normal exit rule; it's how many scams end.

How do you know if an investment is right for you?

An investment fits you when it serves a written goal, the money won't be needed before the product's intended holding period ends, and you could watch it fall by a third without selling or changing your plans. If any of those fail, the product may suit someone else, but it's wrong for this money.

Question 6 links back to your plan. If the goal is a home deposit in three years and the product is meant to be held for at least five, it doesn't fit, however good it sounds. The before-you-invest checklist covers goals and timelines.

Question 9 uses a fixed share, a third, so you can't talk yourself out of it; falls of that size are well within what share-based investments have experienced. Picture it in money: for example, $9,000 becoming $6,000. If that would force a sale, the risk tolerance lesson helps you find a level that fits.

Who holds your money, and is the firm checked?

Your money and investments should be held by an authorised firm or its named custodian, kept separate from the firm's own money and recorded as yours, and the firm should appear on the official register for the service it offers. If you'd be paying a person, a crypto wallet or an unrelated company, stop there.

Ask in writing which firm or custodian will hold your money and investments, how they're kept separate from the firm's own money, and whether statements will come to you from that firm or custodian. Then find the firm on your country's official register yourself, by typing the regulator's address, and check that its contact details match yours.

These are stop questions because nothing else matters if the money goes to the wrong place. Our lesson on how to check an investment firm or broker covers the register, clone firms and payment details.

How do you read an investment offer or key information document?

Read an offer document in this order: who makes the product, what it invests in and aims to do, its risk rating, its costs, how long you're expected to hold it and how to cash in, then the scenarios and complaints sections. Treat performance scenarios as illustrations, not promises, and write each answer straight into your ten questions.

Many regulated investments come with a short, standard document of a few pages, designed so that products can be compared. Longer documents, such as a prospectus or annual report, add detail: go to them when an answer is missing or unclear.

Not every investment has a standard document, and headings vary by product and country. An offer with no written documents at all, only a slideshow, a chat message or a video, answers several questions at once.

What is a decision journal, and what goes in it?

A decision journal is a short written record of each investment decision, made before you pay: what you're buying, why, what you expect, what would make you sell and what you're unsure about. It protects you from hindsight, shows you patterns in your own choices, and builds a cooling-off pause in before money moves.

• Date and decision: what, how much and through which firm.
• Your ten answers: short notes from the Ten Before You Pay check.
• Why now: what made you decide today. If it's a deadline or a tip, wait.
• Bias check: which bias might be at work? Fear of missing out, chasing recent winners, or reluctance to admit a loss.
• What you expect: how it might behave, including a bad case, and over what period.
• Exit rule: what would make you sell or stop adding, decided in advance.
• Doubts: what you couldn't find out, and what would change your mind.
• Review date: when you'll read the entry again.

Leave at least a day between writing the entry and paying. When you review it, judge whether your reasoning was sound with what you knew then, not only whether the price went up: luck can make a poor decision look good for a while.

What does the check look like in practice?

Here is an illustration. A fictional learner sees an advert for a 'managed income fund' promising steady monthly payments. Working through the check, they can answer some questions, but not what the fund holds or how it makes money, and the firm isn't on the register. Two stop answers mean they don't pay, whatever the advert says.

Two stop answers end the decision on their own. The register search and payment details are also useful if the learner reports the offer to their country's financial regulator.

Illustration only: a fictional offer and learner.

When is the check not enough?

The check helps you understand a decision; it can't tell you whether an option is right for your whole financial situation. If you're investing a large sum, pension money or money others depend on, or the decision involves tax, borrowing or a business, speak to a regulated financial adviser who can give personal advice.

The check can't remove risk either: an investment can pass all ten questions and still fall. It makes sure that, if it falls, you knew it could, you could afford it, and your money was with a genuine firm.

Investment decisions: common questions