Is Investing In Stock Market Assets For You?How can a person decide if they should be investing in stock market assets? The real issue, however, is that we find it hard to see the potential pitfalls and instead only see the potential gains from investing in stock market funds or securities. Whilst this site is obviously written with investors in mind, we feel that we would be doing a disservice if we did not try and convince those who should not be investing to not invest. Sometimes, avoiding something can be the best course of action. So, if you are thinking of investing in stock market products, we offer below a few thoughts or criteria that an investor should be able to fulfill before starting... 1. You plan to invest with money that is not needed for day to day living expenses. In the trade, this is considered to be money that a person 'can afford to lose'. Of course the reality is that none of us 'can afford to lose' our savings. However, there is a difference between having spare money that will probably be needed in three months time and having spare money that currently has no future requirement. 2. The money to be invested is unencumbered. What? It is not borrowed money. Having to make an investment work because there are monthly interest payments due is not how to operate a passive investment. Such tactics may work for businesses, but this is because they are in active control of the money and company. Should an investment with borrowed money go wrong, the investor is faced with the prospect of repaying interest - and eventually the capital - on an asset worth far less - or possible nothing - than was originally borrowed. Not nice. In October 2008, as the world's stock markets crashed day after day, the true potential impact of too much borrowed money was demonstrated as retail banks, investment banks, hedge funds and investment companies were forced out of business with almost no notice, it seemed. These organisations had masses of short-term borrowed money which they were unable to refinance. They were left with no option but to declare bankruptcy. 3. The money does not need to be accessed for some time. Stock markets and individual securities can be illiquid. This means that there may not be buyers when you want to sell. The smaller a company is, the more likely it is that this may happen. It is generally suggested that money used for stock market investments should not be needed for the 'medium term' - which is often considered to be 3 to 5 years. However, others suggest that money should be tied up for 5 to 10 years. Either way, if an individual needs money in 6 months time, it should not be invested in the market. 4. The person investing (you?) should be willing to do at least some work. In reality, for the majority of people who invest in a diversified fund and save into it each month from their wages, this won't take a lot of effort. Perhaps 30 minutes to one hour each week should be plenty. This comes down to reading the financial pages of a daily paper and keeping a close watch for mentions of the fund, sector or market in which you are invested. Understanding what is going on - and even better, why it is happening - will make decision making far easier. 5. Are you psychologically stable??? Ok, so we ask a little sarcastically. But, we have all met people to whom the idea of losing even £1 or $1 is intolerable and this causes them massive mental anguish. Are you one of these people? If you are, stock investment may prove to be a very stressful experience. If that is the case, why bother? Don't take the risks and avoid the worry completely. If these elementary criteria have not put you off investing in stock market assets for life - and we hope that they have not - following some of the below links to other pages may prove to be very valuable:
We Recommend: Finance Blog | Trading Software | Find Stockbrokers Return To Our Homepages: Stock Market | Investment-For-Beginners |