It’s never too early to start thinking about stock investment. Even though it may be a huge stretch away, you might be starting to think about retirement and feel the need to squirrel some money away. But you may not be ready to take the plunge just yet for several reasons. These can range from the financial to the personal – for example your personality type can be a factor.
Here are some of the factors to take into consideration before deciding whether you are ready to take the next step in your finances.
It has to be financially viable
First and foremost you must have your debts, if you have any, under control. Starting an equity investment portfolio with bad debt is, simply put, an awful idea. There is one very true and perhaps obvious reason for this. You shouldn’t be investing what you truly cannot afford to lose.
Naturally, we have reservations about losing any of our finances, but if you fundamentally cannot afford to lose that money – if it’s going to leave you in dire straits – then these kind of investment options are not the smart route to take right now.
It’s also important to have a rainy day fund, your safety net if something bad should happen like illness that causes extended leave from work. Investment Quorum, the award-winning wealth management service, recommend savings in the region of 3-6 months salary to constitute a solid rainy day fund. This way if disaster strikes, your investments go belly up and you’re not in work, you’ll still be able to get by for a time.
Patience really is a virtue
You might have the money, but you also need the patience if you’re to avoid making rash decisions in the hope of getting rich quick. To invest successfully and safely you need to prescribe to a ‘get rich slowly’ ethos.
You should be aiming to make money over years, not months, working towards a distant goal. Slow and steady wins the investment race.
To ease yourself into it, it can be incredibly useful to build up a practise portfolio. You can do this by following a small number of shares very closely, or, alternatively, you can try use a stockbroker’s online tools, often for free. After this you can think about committing to a stockbroker.
Goals and timeframes are important
Any stockbroker worth his or her salt is going to explore your objectives for investment. This will help in strategizing your investment choices. It’s important to give this some thought, identifying your most important goals both long and short term.
You and your stockbroker will need to take into account how much your goals will roughly cost and whether it is realistic with your budget. You can complete an investor policy statement to help you discover these objectives like this one from Investors Chronicle.
If you have no sense whatsoever of your goals and objective for buying shares then you may want to explore this before you take any further steps.
Be willing to take a risk – nervous dispositions beware!
Another factor that is key to investment choices is your risk tolerance. If you have no risk appetite at all then this probably isn’t for you. However, if you have some tolerance, ranging from a willingness to accept occasional loss to an all out adrenalin junkie, then you should be fine to play the game.
The stock market does not necessarily have to be a gamble if you work to a disciplined ethic but there does need to be a willingness to take a risk.
Investing isn’t Twitter – be wary of what’s trending
Personality type can be a big factor in investment choices. If you share a tendency with the world’s sheep to follow the rest of the herd, that’s something you’ll need to address. Following the trends can end quite badly more often than not. Invest because it’s smart, because you’ve weighed up the pros and cons, not because it’s the thing that everybody else is buying into.
Buying stock is a serious business, so be prepared to invest more than just your money in order to succeed.