The stock market is as fascinating as it is frightening for many small-time, would-be investors.
You’ve heard tales of the guy who bought eBay stock and made a killing, but you’re also worried about the multiple stories of inexperienced investors completely losing their shirts.
While there are a ton of articles telling you what to invest in, comparatively few tell you how to evaluate whether or not you should invest anything in the first place.
Here are some things to consider before you invest in the stock market.
Timing is King
“Buy low, sell high” is the mantra of stock market investment. So while tomorrow might not be the right time for you to invest, next week might be.
Timing has a lot to do with answering the question of whether or not you should invest in the stock market, but unless you’re a professional financial analyst, it can be a question that is nearly impossible to answer.
Still, if the market takes a downward turn, that might be your time to buy in at low, low prices.
Do You Have the Stomach for It?
The stock market can fluctuate greatly. The investors with the best returns are the ones who can weather the storm. When your stocks take a hit, are you the type of person who can hold onto them until they turn around? Or are you going to want to dump everything and get out while the getting’s good?
Being able to answer this question honestly is important. If you can’t hold on to declining stocks in a bearish market, then you probably don’t have what it takes to invest in stocks directly.
Choices, Choices, Choices
To know which stock to choose, you have two options: you can hire a broker, which includes fees for services and transactions, or you can decide to go it alone, which has unofficial fees in the form of inexperience with the stock market.
Still, knowing what to buy might not be as hard as you think. Further, much success in the stock market has a lot to do with holding on for the long haul.
The people who find success in the stock market don’t make their money over just a few days of savvy trading. They make it by buying something they know will grow over the long term and holding on to it even when times are tough.
Do You Have the Money?
It’s not time to invest if you’re sitting on a lot of high-interest debt and don’t have an emergency savings fund. Most experts agree that your emergency fund should cover between three and nine months of living expenses.
Paying down high-interest debt, such as credit card debt, is an investment in yourself and your own financial future. This is the kind of investment you should make before you start dabbling in the stock market.
Finally, you should be maxing out any contributions you make to a retirement plan, such as a 401(k). Once all of that is in place, its time to start socking money away for the market. You can start with as little as $500.
To Invest or Not to Invest
The question isn’t whether or not you should invest. The question is whether or not you should invest right now.
There’s never a “perfect” time to invest, but if you’ve done the research, can weather a storm, and have money to responsibly spend on investing — do it.
Investing in the stock market a great way to plan for a future of financial security.
Nicholas Pell is a freelance writer based out of Hollywood, CA. He has a good track record of picking good stocks.