Has news of the rebounding stock market piqued your interest? Perhaps you have a little money set aside and have been contemplating trying your hand at some “Big Board” action? Before you find a broker and jump in feet first, make sure that you are truly ready. According to experienced financial gurus, there are certain bases that must be covered before throwing your hat into the Wall Street ring.
1. Have an emergency fund in place
Before taking a gamble on stock purchases; check the status of your household emergency fund. Ideally, it should be able to cover a minimum of six months of expenses.
2. Have zero credit card debt
If you owe a balance on one or more credit cards, paying those off should be your priority. Never think you can use stock trading to make quick money. The NY Stock Exchange is not on par with the Blackjack tables in Vegas!
Need some help getting control of your credit card debt? Read this.
3. Educate yourself
You would not go scuba diving without being certified just because you bought all the gear, right? Having the extra cash to invest is a very small part of becoming a successful investor. You will need to have a full grasp of how the stock exchange system works and what you may invest in, such as, the different types of stocks, bonds, mutual funds, and securities.
Finally, here is a link to an article, which discusses several book recommendations for new investors: http://money.cnn.com/2011/06/30/pf/expert/investing_books.moneymag/index.htm
4. Be familiar with what you invest in
Whether it’s because you have a keen interest or prior knowledge in a particular business, know what you are investing in. Obtain copies of annual and financial reports and study them. Search out any information online for further comparisons, so when things begin to happen, you will understand why.
It’s best to spread your hard-earned cash around rather than putting it all in the same place. That way, if one goes up and one goes down, you’re somewhere in the middle rather than the extreme. Diversifying also creates a financial balance for your investments. It is simply the nature of the market that depending on factors such as the economy and political climate, some stocks will do better than others. Then, some will bounce back and the tables will turn.
Here’s a YouTube video that offers some insight into diversifying your portfolio:
6. Be patient
Savvy investors make their choices and sit back. They have done their homework and are at ease with their decision. They know there will be ups and downs and are in it for the long haul, which can be anywhere from 5 to 20 years or more.
Take it from the billionaire next door, Warren Buffet:
“You don’t have to be a genius to invest well, but master the basics.”