3 Signs You’re Ready to Invest in Stocks

Investing in stocks can be a fantastic way to boost your income and have some fun. However, new investors shouldn’t simply rush in. Consider the following points to determine whether you’re ready to invest in stocks.

Your Finances Are in Order

Buying stocks can be a great way to grow wealth, but you should be in good financial health before you consider investing.

If you have credit card debts and personal loans, pay those off first. Credit card interest rates average between 13 and 23 percent, while personal loan interest rates typically sit between 10 and 28 percent. Stock returns average around 10 percent. In simple terms, your interest charges will outweigh the return you’ll get investing the same amount of money in stocks. Focus all your attention on paying down those high-interest debts first to get ahead financially.

While we all hope we’ll stay gainfully employed and in good health, we never know what’s around the corner. If you’re like most Americans living without savings, set money aside in an emergency fund before putting it into the stock market. Experts recommend depositing enough money for three to nine months’ worth of expenses into a savings or money market account. These accounts work best because you can use your money when you really need it.

Treating paying down debt or generating savings as a regular bill you must pay is a good strategy. Decide how much you can afford to invest in your money goals, then follow through as soon as you get paid, before you’re tempting to spend the money on other things.

You Have Other Investments

Buying and selling individual stocks can be a great way to make money, but even experts admit there’s a steep learning curve. That’s why experts recommend choosing easy-to-understand investments such as mutual funds or index funds first. These simple investment options aren’t subject to the same highs and lows as the stock market, so you’re virtually guaranteed to make money over time. Get these guaranteed investments first, before contemplating adding individual shares to your portfolio.

You’re Familiar With the Stock Market

Warren Buffet has an uncanny knack for picking the right stocks, but even he concedes playing the market isn’t for everyone. He says a lack of knowledge about the stock market is a key barrier to success for most people. Understanding how to make money in stocks will give you the best chance of turning a profit.

Spend time getting to know how the stock market works and the strategies successful traders use to make money. Study the market, its trends, and the stocks and industries that are doing well. Read financial publications and start following traders on social media. Take note of what successful traders do and the mistakes less successful traders make, so you don’t repeat them. Imagine what stocks you’d buy and see how they perform. The knowledge you gain before investing real money will hold you in good stead once you do.

Investing in stocks isn’t something anyone should do without preparation. Take the time to get investment-ready for your best chance of financial success.