As with most things in life, the hardest part of investing can be getting started. The stock market can be an intimidating place; large, complicated, and with it’s own unique language. It is easy to become overwhelmed and give up before you even start.
While most people understand that there are gains to be made by investing in stocks, fear and risk-aversion keep many people on the sidelines, earning next-to-nothing in traditional savings accounts and CDs, or actually nothing by keeping money in checking accounts.
So, what is the first step to investing? The first step is to answer some basic questions to figure out your goals, your investing style, and your views on risk. By doing an honest assessment of your expectations, and investing within your comfort level, you can better position yourself to build wealth, and realize your goals of financial independence.
Figure Out Your Goals
Every situation is unique, and therefore, so is every investment style. The most important step is to figure out what your investment objective is and plan accordingly. Certain investment styles will be riskier than others, so it is also crucial to operate withing your risk-tolerance comfort zone.
The time frame you are working within is also important. If you are looking for large returns in a short amount of time you will have to employ a much riskier strategy than if your goal is to slowly build wealth for retirement.
The harsh reality when it comes to investing is that the more you are willing to risk, the larger the potential gains, but the chances of losing your entire investment increase as well. There is no such thing as a “sure thing” when it comes to the stock market, and be wary of anyone who tells you anything different.
Set A Budget
Take an extensive inventory of your weekly, monthly and yearly expenses to better figure out what portion of your income you can devote to investing. Keep in mind that money invested in the stock market should be committed for at least five years, and ideally you should have at least six months to a year of emergency funds available in a high interest savings account or CD.
Once you have figured out your budget, you can decide if you would like automated withdrawals from your paycheck deposited directly to your brokerage account, or if you would like to actively make these deposits yourself. There is really no wrong decision, it is only what works best for you.
The key is to set a realistic budget and stick with it. By making an unrealistic budget for yourself, you set yourself up for frustration and failure. Factor in a little wiggle room to still have a little fun, after all, you have to enjoy life while you are living it, not put your happiness on hold for “later”.
Choose Your Investments
There is no shortage of investment opportunities available to investors, but choosing the one’s that are right for you can be overwhelming. There are individual stocks, mutual funds, and ETFs for every possible industry, sector, and commodity, but not all of them will be a good fit for your portfolio.
This is where research comes in. Now a days it is extremely simple to access performance records, industry news, analyst’s recommendations, and corporate financial information. All of this information and more is available online, often free of charge.
It is only by performing careful, thorough due diligence that you can make an informed decision, and achieve the best results possible for your unique investment objective.