Investing in the stock market isn’t as scary as it seems. To the outsider, it might look like a place where stuffy suits take the money of hardworking people and spend it until it’s gone. In reality, however, it’s a fairly welcoming place where anyone could potentially see their money make money.
To do that, however, you need to know what you’re getting into. There are several risks involved with investing, as nothing is guaranteed in the stock market. After all, your initial investment could, in fact, lose some of its value.
Avoiding a bad investment, however, requires effort. You wouldn’t want to buy something without knowing how it works first, so why would you invest in a stock without knowing how it’s doing?
That’s why we put together this list of five things you absolutely must do before you invest. If you want to make safe, sound investments and help your future financial situation, you need to follow these steps before you spend a single dime. Otherwise, you could end up losing more than just your investment.
Take stock of your finances.
If you’re in debt and can barely manage your bills, don’t even think about investing. You’ll likely end up spending your investments on paying off your debt, which could end up costing you more after taxes. Only invest if you can afford to put away money for a long time without touching it (read: years).
Consult an accountant or tax professional.
You might think you’re aware of your unique financial/tax situation, but confirm with your accountant before you invest a dime. Tell them that you want to invest in the stock market, and they’ll give you an idea of how that could benefit your future financial status. If you want to invest in a retirement vehicle like a 401k or an IRA, your accountant will guide you to the one that makes the most sense for you.
Do your research.
If you want to invest in a stock, fund, or any security, be sure to read any publicly available information pertaining to that security. Publicly traded companies must have quarterly and yearly earnings on file, and they’ll likely have some forward-looking statements about future earnings, too. But don’t just take their word for it; read any news or outside analysis about the company to get an outside perspective about how things are going. After all, if a company’s in trouble, they’re still going to be pretty positive about it no matter what. It’s the job of reporters and analysts to be critical when necessary.
Ask other people.
StockTwits, our sister site, lets investors and traders alike sound off on how they feel about a stock. While you might have the company’s financial statements and expert analysis from an independent financial researcher, it’s always great to hear what other investors are doing. StockTwits lets you see how people feel about a stock right now by measuring investor sentiment.
Add funds to your brokerage account.
You need money to buy stock. Your brokerage needs your money to execute stock orders for you. If you want to invest, you have to withdraw money from your bank and deposit it into your brokerage. Once you’ve deposited money into your brokerage account, you can use it to pay for shares and any commissions or fees accrued for each transaction.
Once you’ve completed these five tasks, you’ll be on your way to making your investment. If you don’t know where to start investing, you could always follow our simple starter guide to get an idea of where to begin. If you don’t already have a brokerage account, consider signing up for a fee-free Robinhood account.
No matter what you do, always do your research, ask a professional, and ask yourself if investing is right for you.