The coronavirus outbreak and lockdown across the world has sent the financial markets into chaos recently. With platforms such as eToro and Trading212 bombarding our YouTube adverts, many people (quite rightly so) have seen this as an opportunity to invest and learn more about what is going on in the economy. If you follow my content on Instagram, you know that I myself invest in the financial markets and I encourage others to do so, which is why you may find the title of this article somewhat contradictory with what I believe...
The problem is that I think that some people may be looking at the financial markets and the world of investing from a very simplified perspective. They heard about their friend who bought shares of company X and then sold them the next day for a 10% profit and think they can do the same. Investing is not a get rich quick scheme that will solve all your financial problems, and very few people quit their job and do this full time. If that's what you're looking for, then this isn't for you. You might as well take your money to the casino in that case. Even professional investors and hedge funds often incur losses, even when they have done extensive research into the companies that attract their attention. If you have little to no understanding of investing, then what chance are you giving yourself at success and positive returns if 10 minutes after seeing one of these YouTube ads you've already put money in any old company that tickles your fancy?
What I'm trying to say is that investing is great, and with the market at all all-time low since the last crisis, this is indeed a great time to get started. Just please, make sure you do things properly...
So let me help you out. Here's 9 key questions to ask yourself before you start throwing your money at the first stock that catches your eye. I could give you the answers to these overarching questions, but I won't. I'm simply going to give you some related, more specific questions. If you are serious about this, these questions will help you find some starting points to do your own research and help you "find yourself" as an investor.
#1 Do you understand the financial markets?
Do you know what the stock market is? How does the market move up and down and why? What makes up the values in it? Are all stock markets the same? What is an index? What companies make up an index?
#2 Investing is as simple as buying at one price and selling at a higher one... right?
Are you sure? Is this the only way that you can make money when you invest in a company? Does the share price always go up? Can a share price go down as well? Does this mean you lose money? What are dividends and why should I be interested in them?
#3 Do you know what the difference is between investing and trading?
Really? There's a difference? How often should you be investing? How much time should you spend a day, a week, a month, a year investing?
#4 What is your investing strategy?
How are you going to make my money? What stocks do you want to include in your portfolio? Will you be investing in stocks only, or other instruments as well? What is your criteria for selecting potential investments?
#5 Do you know how much risk is involved?
Do certain strategies and/or financial instruments carry more risk than others? How much risk are you willing to take? How can you best manage your risk to minimise it?
#6 Are you being scammed by someone/something?
Is your trading platform or broker trustworthy? What is the online community saying about them? How long have they been around for? Does this fund have a good track record of consistent returns? Does this person trying to sell you their services have a proven record of positive results with testimonials? What is in it for them? What is in it for you? How much are they charging you in commissions or transaction fees?
#7 Are you really in it for the long run?
Are you doing this just to make some fast and easy money? If you lose money, will you quit? Does investing for a longer time period mean you can make more money? If things start getting tough or a crisis hits, will you sell off your investments or will you hold on to them?
#8 Can you meet your basic needs and cover them in an emergency?
Do you have other financial commitments at the moment that take priority? Are you financially stable to be able to able to put your capital at risk?
#9 Do you know what you are investing in?
How much money could you make? How much money could you lose? How do you evaluate whether this is a good investment or not? Could you lose/owe more than you've invested?
This is not an exhaustive list, but should be able to point you in the right direction to get started. You won't get all the answers all at once and it is a learning process. You will make mistakes and probably lose some money. But once you begin learning about everything I mentioned in this article, you are on the way to giving yourself the best chance at making a success of investing. For those who have read this article and are serious about investing, I wish you all the best in your learning and investing journey!
Though I appreciate that not everybody reading this article will be religious, I believe that the bible is one of the best teachers when it comes to money, at that its principles are still relevant today. With this, I leave you:
"Wealth gained hastily will dwindle, but whoever gathers little by little will increase it" Proverbs 13:11 (ESV)
Did you find this article helpful? What other questions would/did you ask yourself before you started investing? Let us know in the comments?
Millennials With Money exists to provide personal financial education to Millennials and young people, and build a community of people who are motivated to creating long term financial health.
Disclaimer: This article is for informative, non-advisory purposes. Millennials With Money will accept no liability for any losses for investment decisions made based upon the content of this article.