Market Watch

Market Data/graph

What is it you want to accomplish by investing.  Most indicate retirement as a goal, but there are other reasons to invest.  College for the kids, house, car, are just a few.  There are a number of things you need to consider before you define your plan and set your goals.

A budget is probably one of the most important things you can do for investing.  If you don't budget you don't know what's coming in and what's going out.  Budgeting today is so simple.  There are inexpensive budget programs that you can purchase that make it fun, if that's possible.  When you buy a PC you can get MS/Money program that is bundled with the purchase of the PC.  Check it out, you might already have it.

Your age- If you are just starting out in your career and have 40 plus years left in the workforce you can begin with your company's 401k or retirement plan, depending on the size of the company.  If you are middle-aged, you should already be investing in something.  If you are nearing retirement, there is still time.  It is never too early or too late to invest.  Investing doesn't have to be the stock market. Investing is anything that has a return (money) from an asset. 

For our purposes here, Investing can be stated as buying market securities for the long-term.  What is long-term is anybody's guess, but something in the neighborhood of at least years.  If you had a time horizon of, let's say, ten years, then buying stock in a company normally should not be a problem.  The market and stocks tend to rise over periods of years.  The risk of buying stock in XYZ company (as long as XYZ is a good company) would be minimal over the long-term.

Trading is a term, for our purposes here, that describes buying and selling stock in a short period of time.  That time can be minutes- to days- or even weeks- but less than long-term. The risk can be very high depending on the time frame and whether you need the funds.

The table below shows you the risk over different periods of time.

The risks in the above table is judgmental. If you hit the market at the right time you can make money with very low risk and high reward. The problem is you don't know when a rally, or a substantial rally will occur.

Another thing to consider is, do you have the money to gamble?  The word gamble is used to get your attention.  If you decide to trade you may be gambling.  If you intend to invest, then the period of time you chose will make it a less of a gamble.

Other items to consider:

Do you have a budget- You need to budget only for the fact of gaining control. You need to know what you make and what you spend so that you can invest or trade.

Do you have an emergency fund- An amount (normally 3 to 6 months of what you need to pay bills) that is set-aside in a savings account or money market.  A set amount of money that is liquid and that you can tap into if for some reason you need to. The very last thing an investor wants to do is have to sell an investment.

Related links:

Investing in the stock market for beginners

Investing- Educational Resource Links

How to budget using spreadsheet and software programs