6 Simple Questions People Should Ask Themselves Before Investing in the Stock Market

Investing in the stock market can be a mix of emotions and can take you on a roller coaster ride financially if you are not prepared. It can also be intimidating, scary, and sometimes, plain confusing at first.

By investing in the stock market, you can elevate your wealth overtime and reach your future financial goals, like retirement. I’ve been invested heavily for a few years now and it’s been one of the smartest things I’ve done financially.

As you start looking to put your money to work, you need to ask yourself some simple, but important questions before doing anything.

1. Do I understand basic investing terms and know how stock market investing works?

Before jumping into pretty much anything, I find it important to know what certain things mean, and understand how something works. You don’t need to know every little thing, but at least get your knowledge on a bit first.

There is a lot of moving parts to the stock market, but if you spend some time learning it’s fairly easy to understand. This knowledge will help you make better investing decisions along your financial journey.

2. Why am I investing in the stock market?

You need to know why your are investing in the stock market. It will help you stay on track with your portfolio and help you choose your correct investments. Your goals will probably change over time and you may have more than one goal, which is why you should re-evaluate once a year (or more if need). This will help you adjust and ensure you are investing in the right assets.

3. What is my risk tolerance with my investments?

You need to ask yourself when you first start to consider investing, what your risk tolerance will be. You don’t want to be overly aggressive and invest all your money, otherwise you set yourself up for a quick financial disaster. Although that may be obvious, it happens to newbie investors more often than you think.

The other things to consider, is if you are investing for short-term gains or for long-term reasons like retirement. This will help you determine how conservative, aggressive, or how diversified you should be, and if you can handle big stock market swings without panic selling, etc.

4. Am I mentally prepared for the stock market ups and downs?

Investing in the stock market is one emotional ride that can disrupt your financial goals if you make rash and emotional panic sells. There will be massive swings up, down, and sideways with contradicting information all over. If you aren’t mentally ready, you’ll fall victim to the buy high, sell low mentality. Even if you think you are prepared, you probably still aren’t when your first major swing in the negative direction happens.

5. Do I understand what I’m going to invest in and why?

Not everyone is going to be an investing expert or manage their own investments. But, it’s still important to know what your investments are and why these make sense. Also look at historical gains, what kind of stocks or bonds are in it (if an index fund or mutual fund), etc.

It will take some research and trial and error. I’m not perfect either, but I’ve found my portfolio that I’m comfortable with and know why I feel that way. Any losses because of my dumb mistakes early on were okay because I have time to recover. I also knew I was investing for the long-term and not throwing all my money in at once.

6. Who am I investing with? Do I understand their fees?

Another important question to ask yourself, is what financial institution you plan on investing with. And, do you understand their basic fees? (any management fees, fund fees, rollover fees).

There are many investment institutions to choose from like Charles Schwab, Voya, American Funds, Fidelity, and my favorite Vanguard. Yet, if you have a company 401k plan, you won’t have a choice as that’s who your company has chosen.