As you watch the stock markets show positive returns week after week, you ask yourself is this a good time to invest. The current average return on a savings account is .24% according to money-rates.com. We are always looking to put our money somewhere that gives us a better return. Another safe option is a 1-year Certificate of Deposit, which has an average return of .52%. This is better then the savings, but still not ideal. For better returns we will usually turn to the stock market. There are many avenues you can use to invest in the stock market. Before looking at the stock market as an option, there are many things you should consider before liquidating your savings and investing it.
The first thing prior to investing is to make sure you have at least three months of expenses saved in case of an emergency. This is the risk adverse side of me talking. The next thing to think about for investing is the risk you are willing to take. Investing is a strategic gamble, but it is still a gamble. Make sure whatever you are willing to invest you are willing to lose. The third thing to consider is setting investment goals. What are you trying to accomplish by investing in the stock market?
If you are a young adult you can invest in high-risk high reward stocks because you have time to recover the losses. If you are closer to retirement you may invest in low risk low reward stocks because you have less time to recover any possible losses. When you first start investing, try setting a gain/loss threshold. For example, set a 15% threshold. This means if the stock has a 15% gain sell it; if the stock has a 15% loss sell it. Setting this kind of goal will help you stay humble and will keep you from chasing those gains when the market declines. You won’t get rich overnight, so be patient with your investment strategy. Investing in the market is great tool, just be smart and use your brain.
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years. “
– Warren Buffett