Last Updated: March 1, 2011
Life is good. You love where you live. You’re flourishing at work. Your income is growing, and so, too, is your bank account. Everything, it seems, is falling into place.
But a question keeps gnawing at you: Should I be doing something more constructive with the money I’m accumulating than merely stashing it in a checking or savings account where it earns virtually nothing? That question begs another: Is it time to start investing your money?
Here are some questions to ask yourself before deciding whether to put your money in the market:
Do you have BIG aspirations? Want to buy a house? Fund grad school? Send your child to college? Retire early? Investing can provide the means.
Do you understand how investing and investment vehicles work? “Some level of financial literacy is a must before you start investing,” says FPA member Joe Pitzl, CFP®, at Intelligent Financial Strategies in Edina, Minn. If you don’t know the difference between a stock and a bond, access the Internet, bookstore or library for objective info on investing fundamentals. Websites such as Bankrate.com and Investopedia.com are good starting points.
Do you have consistent positive cash flow and significant cash reserves? If so, you are probably in a good position to start investing. As a benchmark, financial planning experts suggest a cash reserve of three months for married, dual-income couples and six months for a single-income, self-employed family.
Do you see the big picture? Investing is one component – albeit a vital one – of a broader financial strategy. The money you accumulate through investing not only can help fund major purchases (like a home) and later, retirement, it can support other key aspects of a financial plan, such as purchasing life insurance.
What’s your mindset? The value of your investments will fluctuate. You’re in this for the long haul, though, so don’t let short-term ups and downs steer you off course. Patience, perspective, level-headedness and reasonable expectations will serve you well.
What’s your comfort zone? If you’re a toe-in-the-water type, test the waters with small initial investments. If you’re more hands-off, try balanced-allocation funds that do much of the thinking for you.
Are you open to advice? If possible, engage the service of a competent, trusted financial planner who can help you put an investing strategy in place as well as integrate that strategy into a broader financial plan.