Investing isn’t that scary if you come prepared. I have been investing in the stock market since 2014. I started by investing in a 401ks with my employers, then expanded to individual stocks and crypto currency. My experiences have taught me that investing in stock isn’t for everybody especially for people who doesn’t have the discipline. Today, I want to share 5 things that anyone should be prepared for prior to investing in the stock market.
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Understand basic financial literacy.
Are you familiar with these term: ETF, Mutual funds, bonds, credit score, return rate, 401ks, asset allocation, capital gain, re-balancing, compound interest, debt-to-equity ratio… I was very nervous at first when I started so I decided to educate myself by reading a bunch of books. I also listed a few books here that are definitely worth your time .
2. Decide how much money you are willing to lose.
Stock investing isn’t 100% guarantee that you will make money. A lot of people who have unrealistic expectation because they think stock can turn them into millionaires overnight. Investing in stock is just like a more educated form of gambling: you have to be ready to lose your money.
3. Decide which broker you want to invest in.
There are many options out there to choose from. TD Ameritrade, Fidelity, Charles Schwab, and Vanguard are few best trading platforms and they have been around for a long time. First, you can make your decision based on how easy it is to operate the site or apps. Look around, download the apps, create user name, and read reviews. Some platforms are more user’s friendly than others. If you just started, these brokers can be intimidating to read up upon. Readers can be overload with the amount of available information, which makes it even more difficult to pick the broker you want. Essentially they are all doing the same thing: help you trade stock. Second, it depends on your goal: day trader or long term investment. For instance, if you are a day trader, you want to pick something that has low cost such as Fidelity
4. Decide how long you want to invest.
You can either trade stock on the daily basis if you equip yourself with the right tools and knowledge, or you can put money to an Index fund and let it grows over a long period of time.
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5. Basics mentality while investing:
- Diversify but refrain from over diversification: basically I am saying don’t put all your money in one basket. Sometimes it is a difficult thing to do because you want to get rich quick and the only way to do it is to have a large fund with only one option. This get rich quick mentality is proven to be ineffective and 99% will get you bankrupt.
- Don’t time the market: it takes discipline and patient to invest. Financial planners have always been warning investor to avoid this method. It is extremely unlikely that someone can catch the top or bottom of the stock market cycle. You will lose money during the process.
- Leave your emotion out of it: social media, people who are close to you such as your friend and family will have a big impact on your decision. Being too greedy will affect your decision. Don’t invest in an unknown speculative stock just because they are hyped up from social media. It’s important to understand the risk involved.
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