People who have been asking me how to invest in the stock market has more than tripled over the past couple of months compared to the same period last year.
I couldn’t blame them, because news on the current bull market is everywhere – from social networks to traditional media.
And I’m pretty sure that whenever there’s news that the Philippine stock market has reached another record high, people who don’t own stocks feel that they’re missing out on the “greatest party of the year”.
That’s why over the past few weeks, many have dared to open an account without full knowledge of what they are actually getting into, and armed only with hopes that they will make money from the stock market.
To those who “joined the party”, I give you one piece of advise:
Only invest money you can afford not to touch for at least five years.
Now for those who’s still thinking of investing in the stock market, here now are four very important reasons why you should NOT do it, unless you want to lose money.
Reason #1: You don’t have an emergency fund.
Before investing, get into the habit of saving first.
More importantly, be sure that you have at least six months worth of your monthly expenses safely tucked in a savings account and 30-day time deposit.
Reason #2: You don’t have low and moderate-risk investments yet.
The stock market is a high-risk instrument. All smart investors will tell you that the best way to manage your risk is to have a balanced and diversified portfolio.
This means having the right proportion of low, moderate and high-risk investments.
If it’s your first time to invest on paper assets, then please go for low and moderate-risk investments first.
Reason #3: You don’t have an investment objective.
Why do you want to invest in the stock market? Don’t tell me because you want to make money. Have a more concrete reason than that; or to put it another way, ask yourself – where are you planning to spend the money afterwards?
Having a specific investment goal will help you determine if the stock market is the best option for you.
Reason #4: You don’t understand how the stock market works.
How do you know if you’re ready to invest in the stock market?
At the very least, you should be able to define and make a 12-year-old kid understand the following stock market terms:
- Stock broker
- Board lot
- Fundamental analysis
- Technical analysis
- Price to earnings ratio
- Support and resistance levels
- Bull and bear markets
- Cost averaging strategy
It’s okay to miss the party
If any of the four reasons above applies to you, then I advise you to just “stay home and miss the party”. I guarantee there will be another one waiting for you once you’re ready.
Lastly, should you want to learn more on how to invest in the stock market the right way, then please read through my collection of posts that’s guaranteed to help you understand how everything works: How To Invest In The Stock Market
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