Buying stocks can be a daunting task. While there are many factors to consider, you can help yourself make better decisions by breaking down the process into smaller steps.
When you are comfortable with your completion of these three steps, you will be ready for more detailed investigation into company specifics.
Here are three initial steps to better stock investing:
- Your personal financial goals and means
- The state of the economy and the stock market
- Identifying industrial sectors with prospects for growth
Your Personal Financial Goals and Means
Your first step in any investment decision process is to make an honest assessment of your financial goals and means.
Have you provided for all of your basic financial needs and goals? Have you adequately funded your retirement plan? Do you have adequate insurance including property and life? Do you have a financial plan?
If you can't answer yes to these questions, you are not ready for investing in the stock market.
There are many advantages to investing in individual stocks as opposed to investing through a mutual fund. However, if you do not have the time and willingness to learn, individual stocks may not be the best option for you – consider a low-fee mutual fund instead.
How much money to you have to invest in stocks? You don't need a certain amount to start, however without adequate investment capital your options will be limited. There are ways to start with small amounts and this is a good option for young stock investors and others with modest amounts to invest.
Don't invest money in stocks that you will absolutely need in fewer than five years. Market fluctuations can be a disaster if you have to pull cash out during a severe down swing.
Investing in stocks means you are exposed to the risk of losing some or, potentially, all of your investment. If the thought of your investment dramatically dropping in value makes you want to throw up, stick with safer investments such as U.S. Treasury Bonds, bank certificates of deposit and so on.
Finally, there are factors that are unique to your situation. Aging parents, shaky employment situation, poor health, children with special needs – all of these factors must be included in your determination of whether you are ready to invest in individual stocks.
If you can navigate through the questions and warnings above and are still interested in investing in individual stocks, congratulations you are ready for the next step.
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Here are three initial steps to better stock investing:
