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5 Questions to Ask Yourself Before Investing in a Stock

Stock investing is the foundation of the wealth that is held by some of the richest people in the country. But you don’t have to be a tycoon to play the game. If you have a retirement account, a 401(k), or even some municipal bonds, you’re already an investor. If not, don’t worry – it’s never too late to start creating wealth through investment. Ask yourself the following questions before you jump in the market.

Before you invest, ask yourself what your goals are and how you hope to achieve them.

How Much Help Do You Need?

In order to participate in stock investing, you must go through a licensed broker. Only a licensed broker can buy and sell stocks. There are two types of brokerage firms – full service and discount. Discount brokerage houses only execute trades on your behalf, so they cost significantly less. Full-service brokers cost more, but you’ll build a relationship with a broker who will guide you through your investment career.

How Much Risk Can You Tolerate?

Generally, older investors who are nearing retirement will invest more conservatively. Younger investors – who can stand to absorb more loss – will often take more risk for the hope of more reward. The rules of stock market basics dictate that the more time you have, the more aggressive you can be.

How Diversified Are You?

If you took a stock market basics class, the first thing they’d teach you on the very first day is not to put all your eggs in the same basket. Diversification is the most basic defense against catastrophe in stock investing. Before you load up on any single security, work to spread your money around a little.

What Is Your Goal?

Are you looking to build long-term wealth by purchasing investments and holding them over time, or are you a gambler who is looking for short-term gains off of a few choice picks? The key to successful investment – whether you’re a short-term day trader or a tortoise who hopes to win the longer race – is deliberate moves made on the back of a carefully crafted strategy.

What Is Your Investment Vehicle?

There are countless ways to invest. Will you purchase individual stocks? Funds that include a wide range of securities? Bonds insured by the municipalities that issued them? ETFs that trade like stocks on the market? Research each investment vehicle and decide which one suits your strategy before you make your move.

Your investment will grow if you’re clear about your goals and strategies.

Successful investors have a plan, a strategy and an intimate knowledge about what they want out of their endeavor into the market. Get to know yourself and your strategy by answering a few key questions. In the process, the picture of what you want and the method through which you’ll get it will begin to appear.

Andrew Lisa is a freelance investment writer. He covers the stock market and gives advice to other writers regarding the top content firms, including MediaShower.com.

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