6 Key Questions to Consider Before Jumping into Stock Market Investing

If you’re not prepared, investing in the stock exchange can bring up a lot of emotions. It can also take you on an emotional roller coaster. At first, it can be scary, intimidating and even confusing.

Add to that the headlines about doom and doom, which will only make you feel worse. You may also feel uncomfortable if you read a lot of magazines that tell you what you should invest in and what you shouldn’t.

All of these feelings were mine at first, and I am sure they are shared by most newbies to the stock market. To get started, it’s important to ignore the noise and concentrate on yourself.

Investing in the stock exchange can help you achieve your financial goals such as retirement. It’s one of the best things I have done for my finances to invest heavily.

Before you invest your money in the stock exchange, ask yourself a few simple but important questions.

Table of Contents
How well do I understand the basics of investing and how it works?
Why do I invest in the stock market
What is my tolerance for risk with my investment?
Are you mentally prepared for stock market fluctuations?
What am I investing in and why?
Do I know the people with whom I am investing? What are their fees?
Final Thoughts
How well do I understand the basics of investing and how it works?
It’s important that you know the terms before investing in stock marketing. Do you understand the basics of the stock market?

It is important that I understand what things mean and how they work before jumping into anything.

It’s not necessary to be an expert in everything, but you should at least have a basic understanding.

Stock market is complex, but it can be easily understood if you take the time to learn. You will be able to make better investment decisions as you continue your financial journey with this knowledge.

Check out this article by Investopedia if you’re looking for a quick crash course in the stock market, its workings, and much more.

Why do I invest in the stock market
The first and most important question to ask yourself is, why are you investing in the stock exchange? It usually comes down to your objectives, such as saving for retirement or generating passive income.

You need to understand why you are investing on the stock exchange. This will allow you to stay on track and make the right investments.

You may have multiple goals and your goals are likely to change as time goes on. This is why it’s important to re-evaluate at least once a year. You can then adjust your investment and make sure you’re investing in the best assets.

My goals are the same as they have been for the past five years. However, I am aware that my portfolio will become more conservative as I age.

What is my tolerance for risk with my investment?
When you start thinking about investing, it is important to determine your tolerance for risk. Don’t be too aggressive when investing your money. Otherwise, you could end up in a financial mess.

It is not uncommon for new investors to make mistakes.

You should also consider whether you’re investing for long-term goals, such as retirement, or short-term gains. You can then decide whether you want to be conservative, aggressive or diversified, as well as if you are able to handle large stock market fluctuations without panic-selling, etc.

Before you begin, you should understand the risks involved and decide if you want to take on wild swings to achieve long-term gains or if your goal is to be conservative in order to avoid losses.

SEC provides additional information about risk assessment here.

Are you mentally prepared for stock market fluctuations?
If you sell in a panic and with emotion, it can ruin your financial goals.

You will see massive fluctuations up, down and sideways, with conflicting information everywhere. You’ll be a victim of the mentality that says buy high and sell low if you’re not mentally prepared.

You may think you’re prepared but you will probably be surprised when you experience your first big negative swing.

I had to wait until my first year before I was able to ignore the noise.

Markets will experience corrections, and they can also have wild swings.
Although experts may be good at stock analysis, they don’t know everything that can cause certain swings.
The market timing rarely produces consistent results
I read so many articles and books about how to keep your emotions under control when investing in the stock exchange. I knew and understood it, but I would get agitated when the stock market was in a bad mood.

I sold and bought other funds when I could have stayed and invested. This was a valuable lesson, and you will likely face it too even if you believe you are mentally prepared.

What am I investing in and why?
You have many options when you are ready to invest in the stock exchange. What type of accounts am I opening or investing in? Like IRA, Roth IRA, 401k, Brokerage account, etc.

You may have different reasons for opening each account (see question #1), and you will also need to decide what you want to invest in. Index funds? Mutual funds? Bonds? ETFs? REITs? Stocks?

Everyone is not going to be a financial expert. Not everyone will manage their investments. It’s important to understand what you are investing in and why it makes sense. Look at the past gains and what stocks or bonds it contains (if it’s an index fund, mutual fund, etc.).

It will take research and some trial and error if you want to do it yourself like I did. I am not perfect, but I have found a portfolio I like and understand why.

It was okay if I lost money because of stupid mistakes that I made early because I had time to recover. I knew that I was investing over the long term and I wasn’t putting all my money into one investment.

It’s fine to work with an advisor who is trusted and has your best interest at heart. They can also help you understand your investments.

You need to know what you are investing in, or where they will be.

Do I know the people with whom I am investing? What are their fees?
You should also ask yourself what financial institution or company you intend to invest with. Do you know their basic fees? You will be charged for any management fees, fund charges, or rollover fees.

You can choose from many different investment institutions, including Charles Schwab and Voya. Other options include American Funds, Fidelity and Vanguard, my personal favorite. If you are part of a company-sponsored 401k, however, you will not have the option to choose your investment institution. Your company will have made that decision.

Blooom offers a free analysis of your portfolio if you are a 401k participant. Blooom will analyze your portfolio and make recommendations for you to get back on track. Start here for free.

You should always be aware of any possible fees.

High management fees can reduce your returns and even take years off of your financial goals. You won’t be able to control your company plan but it will help you make better choices.

Final Thoughts
You will have to ask yourself a lot of questions as you begin to invest your money on the stock exchange. As you invest more money, the process will become more complex.

The questions in this article will hopefully be helpful to those who are just starting out. You can lose money or go down the wrong path financially if you don’t ask these questions before investing your hard-earned cash.

If you are still uneasy about investing, you can ask for assistance from the financial institution or financial advisor you have chosen. Always pay attention to the reputation of the financial institution, their fees and whether your investment interests are aligned with their plan.