Suze Orman Says to Ask This Question Before Investing Your Money

It's an important item to consider.

If you have money earmarked for your emergency fund, it's best to keep that cash tucked away in a savings account. That way, you won't lose out on principal unless you actively take a withdrawal.

But if you have money you don't expect to need within the next few years, then it pays to put that money to work by investing it. That way, you can potentially grow it into a larger sum. 

If you're going to invest some of your money, it's important to choose the right assets. And asking yourself one key question could lead you to a smart decision.

What do you need your money to do for you?

Suze Orman frequently gives out investing advice for people at all stages of life, and she has one universal tip for anyone looking to invest today: Figure out what you want your money to do for you. Once you determine that, it could lead you to the right assets. 

So, say you're fairly young and your goal is to grow your IRA over the next few decades so you have a nice retirement nest egg to look forward to. In that case, stocks could be a good bet for you. 

While stocks are known to be volatile, they also have a long history of rewarding investors who hold them for many years. So if you have a long investment horizon and your goal is to build wealth over time, stocks are a good bet.

On the other hand, you may have a more immediate need for income, and so in that case, you may want to choose an investment that's less volatile than stocks and pays you regularly. In that regard, bonds fit the bill. Bonds commonly offer less generous returns than stocks, but they also offer the stability of regular interest payments. 

In fact, these days, a lot of people are looking at I bonds, which are U.S. government bonds whose yield is pegged to inflation. Right now, inflation is soaring, which means I bonds are paying higher interest rates than usual. But while I bonds are generally considered to be a safe investment, keep in mind that if inflation levels start to creep downward, the interest you get from your bonds will be reduced.

And when you purchase I bonds, you have to hold them for at least one year before cashing them out. Plus, cashing out I bonds before holding them for five years means facing penalties to the tune of lost interest. Other types of bonds don't have these rules, which means they give you more flexibility.

Know your risk tolerance

Orman is right when she says it's important to map out your objectives before investing your money. But it's also important to know what your risk tolerance looks like.

If owning stocks is too risky for you, you may not want to do it -- because if stock values fall, your fear might drive you to make rash decisions that cost you money, like liquidating your portfolio when it's down. In fact, you should probably ask yourself what you want your money to do for you and how much tolerance you have for risk before adding any asset to your portfolio. That way, you may be less likely to make a poor choice you regret.