There are many people asking themselves a good question, “should you invest idle cash?” Personally I think it depends on several factors. The first thing that springs to mind how likely is it that you will need this idle cash in the future, as well as your individual employment situation, as well as financial obligations.
If something expensive needed repairing on your car or perhaps an expensive house repair came up, would you still be able to afford it if you invested your idle cash? Do you have enough in liquid savings to last you six months to a year if you were to lose your job? How old are you, and what is your time frame for investing.
These are all important questions to ask yourself prior to investing your money in the stock market. A younger investor with limited financial obligations and a longer time-frame for investing would approach the question much differently than someone who is older, has an abundance of financial obligations, or has a shorter time-frame with which to invest in.
Make Sure You Have Enough Cash For An Emergency
This leads me on to what I do personally in my own finances. I always make sure I have money in a high interest risk free savings account at the bank that I call “emergency money”. I can get access to this money immediately. I use this emergency money for things such as the situations I mentioned above and anything else and any unforeseen expense that may arise.
Even if you do have an emergency fund, investing idle cash may still no be suitable if you are not prepared to take a degree of risk with your money. Investing in the stock market involves the very real risk of losing your capital and therefore is not for everyone.
Unfortunately for most people, the only true path to wealth will involve growing their money through investments, and this will involve various levels of risk. While there are certainly safe ways to invest your money, you must prepare yourself for some level of risk in order to realize meaningful gains in your investments. I talk more about the stock market risks in my trading risks page.
Find Out What Your Risk Tolerance Really Is
The stocks you invest in with your idle cash should depend on your risk tolerance. If you are prepared to take a high degree of risk with the goal of a high return then investing in riskier stocks such as small,medium cap stocks, or even penny stocks may be right for you.
This strategy is certainly not for everyone, as many people are not in a position to take great risks with their hard-earned money. For many people, the answer is to diversify their investments to include low, medium, and high-risk investments using age and risk-tolerance appropriate guidelines in their portfolio.
The reality is that only you can make the decision if investing your idle cash is appropriate for you. We are all unique and individual and have different investment goals.
If you are looking for a good broker to invest idle cash, feel free to take a look at my online stock broker reviews page. I have reviewed many of the top US stock brokers.