Getting Ready to Invest
Beginning Notes and Disclaimer
By reading this stock investment guide you are agreeing to StockBoxFinancial’s disclaimer.
Along with this stock investment guide, we strongly recommend you check out Peter Lynch’s book One Up on Wall Street. Many of our investment philosophies at StockBoxFinancial come from this book. We believe it is the one “must own book” for investors. If you have any questions or comments about this guide please email us support@stockboxfinancial.com
Setting Up Your Finances
Before you even begin to think about investing your money in the stock market you need to make sure that your finances are in order. No matter how great of an investor you are, you are not going to succeed in the stock market if your own financial condition is not tip top shape. One necessary step to securing your financial future is ensuring that you have a solid emergency fund. Consider the following worst case scenario: Hurricane Katrina. When it became apparent that Katrina was going to bring its wrath down on New Orleans, the people who could afford very expensive plane tickets got out before it was too late and, unfortunately, we know the story of what happened to everyone else.
Granted, this is unlikely happen to you, but it’s definitely a smart idea to be prepared. We generally associate an emergency fund with bad events in our lives, but it isn’t always that way. One day you may need to use your emergency fund for your daughters wedding or to pay for your grandchild’s tuition to a super exclusive summer space camp.
Just because you have an emergency fund doesn’t mean it can’t be a great investment. With the surge of internet banking and online savings accounts, there is no reason you can’t earn a four or five percent return. Obviously this isn’t as great as a twenty or thirty percent return which your next door neighbor tells you he made in the stock market, but it’s definitely a good start for your emergency fund. Plus, your investment is guaranteed by the government up to 100,000 dollars. Whenever you look for an online savings account just make sure there are no fees and no minimums. You can check out the latest saving rates offered by banks with a Google search for “savings accounts” or by checking out bankrate.com which lists the annual percentage yields on a large number of savings accounts.
Ok, so now we’ve convinced you that you need an emergency fund. The next question is how much do you need to have in an emergency fund? We strongly recommend have three to six months living expenses. This doesn’t just include your mortgage payment or rent; it includes every expense you will have during a normal month. If you lose your job you want to be able to search for the best opportunity out there without worrying how to pay the monthly bills.
Aside from an emergency fund, in order to prime your financial life for independence and investing in the stock market you need to clear your debt. As you’ll learn, you want to invest money in companies with low or no debt. The reason is that when trouble happens, the company is not under pressure from creditors and banks to pay up. The same is true with your own finances. You want to eliminate debt for things like credit cards that often charge exorbitantly high interest rates.
The final thing we need to discuss with regard to your finances is buying a house. A house is one of the greatest investments you can make. With a house you don’t have to throw money away by paying rent, the government gives you tons of advantages to give you a great return on your investment, and a house is often times a perfect investment during a recession.
How Much Money to Invest
Once you’ve got your finances in order and decide to invest some money in the stock market the question becomes how much do you invest. The best answer is to invest only what you can afford to lose so that your day to day life won’t be affected. For example, if you decide to invest 1000 dollars, then if you were to lose that 1000 dollars your everyday life shouldn’t change.