Four Questions to Ask Yourself Before Investing in the Stock Market

Investing in the stock market is a promising and exciting journey. If approached correctly, the return can be significant. Yet, it’s also a complex world filled with complicated jargon, detailed paperwork and a plethora of statistics and market research that can be difficult for the uninitiated to understand. To this end, you may be interested in the stock market but unsure where to start. If this is the case, it can be helpful to ask yourself a few questions to make sure truly ready to begin down this road. Let’s review four introspective inquiries you can ask yourself today to get started.

1. What are your goals for investing?

Are you interested in creating a portfolio to pad your retirement funds? Or, are you a market enthusiast who’s just always followed the financial ebb and flow closely and thinks it would be interesting and informative to play along? Moreover, are you only investing because your financial advisor, your boss or your close family friend told you to?

Before you begin diving up your money, start first by asking yourself what you intend to do with your earnings. What are your long and short-term goals and why are you pursuing this route at this life juncture? These are questions you’d ask yourself before any major investment (college, buying a house, etc.) so it only makes sense to ask them now as well.

2. What is your risk tolerance?

Does the idea of losing money scare you, or are you willing to ride out the market wave for the hopes of one day ending up on top? If it’s the former, you’re more risk-averse and would be wise to structure your portfolio as such.

Though not always the case, older investors tend to fall into this category as they don’t have as much time to allow the market to straighten out and need to see a return on their investment as quickly as possible. Alternatively, younger investors tend to be more risk tolerant, hoping that as the years toward retirement inch closer, their leap of faith will pay off. To that end, they’re often more willing to invest in newer technologies or the elements that drive them, like lithium stocks that fuel battery technology. Someone with less time to spend on the market might stick more closely to stocks and bonds that have a proven history of a solid performance.

3. How much time do you want to devote to it?

You could cherry pick your portfolio, selecting your stocks individually one at a time, but unless you have the time and resources to devote to learning about the market, researching your options, conversing with experts and more, it’s often wiser to leave those steps in the hands of an experienced financial advisor. Or, you may want to stick with entities like exchange-traded funds (ETFs) that are more straightforward. These often follow the entire market, or at least a wide range of stock, so the pressure is off to hand-select.

4. How much are you willing to spend on fees?

Especially if you do decide to go the ETF route, keep in mind that you could end up paying for fees you didn’t expect. Yet, this also applies to individual stocks and bonds as well, so no investing strategy is totally immune. To that end, you may want to limit the companies you invest in to only one or two. That way, even if there are minimal fees involved, you’re not stuck paying them on 10 different companies.

Before you make a major financial move, it’s important to weigh all of your options and ask yourself the hard questions. Knowing the answer to the above questions can help you determine where you are on your stock marketing investing journey and where you want to go in the future. Then, you’ll be better able to make the sound decisions that lead to greater returns down the road.