If you’re skeptical about investing, then it’s best to know when you can start. Because investing requires money and risk tolerance, you need to prepare yourself in those two areas. It’s because investing is a long-term process and requires patience.
It means you should have a good source of income for a long period if you want to grow your assets. If you’re using investment as a tool to achieve short-term goals, then you’re probably not ready for it. To know if you’re ready to invest, here are signs you should look for:
1. Learned Basics of Investing
As they say, it’s best to understand where you’re putting your money. If you don’t, then, chances are, you might lose your money without knowing why. On the other hand, enough understanding and knowledge will help you make wise investment decisions.
With investing, it’s easy to feel overwhelmed and get lost. There are many types of investments you should understand so that you know which one can help grow your assets. Here are some of them:
- Gold and Silver Investment: When you invest in gold and silver, you’re keeping your assets safe from economic collapse, currency weakness, and market volatility. This is an investment to store your wealth for the long-term because these metals are easily malleable, valuable, and chemically unique. These factors give them more value as years pass by. You can own gold or silver which you can buy from sites like Oxford Gold Group. Or you can invest in exchange-traded funds (ETFs) as a means to own gold and silver without physically keeping them.
- Real Estate Investments: With this type of investment, you can either own a property you rent out or sell. Or you can also buy a real estate investment trust (REIT) which is similar to mutual funds. A professional handles each investor’s asset to use in developing or operating apartment buildings, shopping malls, and other kinds of real property.
- Mutual Funds: If you’re a beginner in investing, mutual funds offer you many benefits. They’re easy to understand, and you can invest in bonds and stocks at the same time. Mutual funds have a primary focus and use pooled money to invest in different holdings. The fund manager will be the one to buy and sell portfolio holdings, and you’ll receive profit as an investor.
- Stocks: Another way to build your wealth is via stocks. These are shares of ownership of specific companies when you buy their shares. Their prices can fluctuate, depending on the economic status and the company’s fortune. You can earn profit from dividends or when you sell them when their prices appreciate.
2. Paid High-Interest Debt
Now that you have an idea on various opportunities when you invest, it’s also best if you have paid high-interest loans before starting to invest. Because investments usually give you around 7-8% returns, especially in stocks, it might not be worth it if you still have loans with interest rates higher than 7-8%.
Because you’re paying more on the loan interests than what you’re earning from your investments; you should first pay them. Some loans like credit card debt cost more over time. To add it to your other loans would make it challenging to pay off your debts.
Even if you have spare cash, using it to pay your debts can save you years of paying interest. That way, you can start investing without worrying about loan interests increasing as years pass by.
3. Saved Emergency Fund
Emergency savings are vital in taking take care of unforeseen events. These should amount to, at least, three months of your monthly expenses. Because emergencies need immediate action and come unannounced, you need to have spare money — emergency funds or savings — so that you won’t have to be financially incapacitated at such times.
If you don’t have enough emergency savings, you might end up getting a loan. Then you might be back to zero because you’re not ready to start investing with an additional loan. But, with a safety net, you have ready-to-use cash in emergency cases.
Moreover, if you started investing without an emergency fund, you might have no choice except to break your investments. As a result, you’re destroying your assets’ capacity to grow because you’re withdrawing them before they mature. What’s even worse is when you sold your investments lower than the price you bought them.
As mentioned, stocks can fluctuate, depending on the market and the company’s situation. If you bought shares, and they fluctuate for some reason when you’re in an emergency, then you might lose more than what you have invested.
For instance, you bought shares from Alibaba Group Holding Limited (BABA) in October 2020 at USD$317.14 without any emergency savings. Now, in January 2021, you met an accident requiring you to pay huge amounts for your medication. Because you don’t have any emergency savings or spare cash, you decide to sell your BABA shares. As a result, you lose USD$91.54 for each share as BABA’s price per share is around USD$225.60 in Jan 2021.
On the other hand, having emergency savings will prevent you from losing your investments. That’s why you should build emergency savings before putting all your extra cash into an investment.
4. Got Extra Cash Monthly
Lastly, you can say you’re ready to invest when you have spare cash each month. That should mean you have paid all your bills, set aside for emergency savings, and paid off high-interest loans.
Extra cash also means you have money piling up on your savings account after you’ve paid all your monthly dues. Even if it’s not worth thousands of dollars, you can start investing with USD$500 dollars. Some even lower than that, but you should be careful with such.
If you can spare at least 10% to 20% of your monthly income after paying all your dues. When you’re not financially burdened in investing a percentage of your monthly income, it’s a sign you’re ready to invest.
When you want to start investing, you must be financially and mentally prepared. Start by learning the basics of investing. Even if you don’t have the finances yet, learning it until you have spare money will help you understand how investments can work for you. Then, start paying your loans with higher interests than what you’ll be gaining from any investment. Consider building an emergency fund first so that you won’t have to get your investments when emergencies arise. When you’ve done all the previous tips and still have extra cash, you may now invest them in various investment vehicles.