Now that we have covered the basics of investing and the stock market, you might still be wondering whether investing is the right move for you. This challenge starts with looking at reasons to invest, followed by some reasons to hold off investing, after which you should be able to make a more informed decision.
Why should you invest?
Let’s start with some of the main reasons that makes investing worthwhile to many.
- Investing is an alternative to saving: by setting money aside people hope to grow it and with time build up a nice small capital.
- Over long periods of time, the stock market generally goes up. Even if there is the occasional crash when stock prices go down, if you have the time and the patience to sit it out and wait, the market will recover again.
- On average the markets go up by somewhere between 7-10% yearly. That is more than most yearly inflation rates;
- The market average is also normally higher than interest rates offered on saving accounts;
- Another fun advantage of investing: many people like to track their shares and see how they are doing with their investments.
Are you ready to invest?
Not everybody who has decided they want to try their luck is the stock market is always ready to start investing immediately. Below are some important questions that can help you determine whether or not this is the right moment for you to start investing or whether you should wait and resolve some other financial areas first:
- Do you any have high-interest debts? If the debts you carry a high interest rate it might be wise to pay these off first.
- Have you got money available to start investing? Traditionally you needed a big amount of money to enter the market, although nowadays with index and ETF investing it is possible to invest with relatively low monthly amounts, sometimes as low as $50-100 depending on the brokerage firm. But do you have that amount of money?
- Can you and your family actually miss the money? Investing often means that you tie away your money for prolonged periods of time. Have you got access to an emergency fund or other types of cash (without having to build up debt by taking out (more) loans!) in case of an emergency?
- How much risk can you handle? If it scares the hell out of you that you might lose a lot of money on the market, then investing might not be a good idea, or maybe you just want to go for very safe bonds.
- Why do you want to invest? What would you want to use money for? Typically the best results one can get on the stock market come about after a prolonged period of time.
Today’s challenge is to give these thoughts and questions some time and go through them and answer them one by one. Make sure to involve your partner as well if applicable. If you end up investing this is often a huge financial commitment, so you want to make sure it is the right thing for you. If you need any further help or like to share your thoughts, make sure to do so in the Facebook Group or on Twitter or anywhere else. Make sure people can find you with the #31DayChallengetoFE hashtag. If you can’t yet make up your mind, have a look at Step 53: To Invest or Not to Invest, one of the 100 steps to Financial Independence.