Most people begin their investing careers with an unexpected windfall of money, a need or want to be wealthy, and a viewing of Wall Street. Yes, “greed is good” is a fantastic quote, but a lousy business plan for a new investor. When you’re beginning to invest you have to put your time in learn the stock market 101 basics long before you put your first dollar down. If you absolutely can not wait to get your money invested please put your money in either a stock market index while you learn or in a couple of mutual funds with a long track record.
Here are some areas you really need to look into before you start investing:
- Asset Allocation - It is tempting to put all of your eggs in one basket, but you really need to learn the impacts of risk. You can actually improve your overall long term returns by balancing your money in different choices that may not all be you max returner. Remember, you won’t always need your money exactly when you think you will. These different areas include money markets, propety investments, stocks, and bonds.
- The Impact of Fees – There are lots of different types of fees built into the system. Everyone needs their share of your dollar and it’s your job to make sure what you are paying is worth it. There are commission fees, buy/ask spreads, slippage, annual fees, per trade fees, per share fees, front end, back end, and all of our favorites taxes. They all have an impact you have to know what it is.
- The Basics of Business – If you’re going to evaluate businesses for purchase then you are going to have to start thinking like a business man (or woman geesh.) You need to understand the basics of supply and demand, cash flow, customer satisfaction, moats of safety, return on investments, etc. You don’t need an MBA, but you do need to be able to hold your own.
- Exit Strategies - You need to learn when to call it quits. There are many options and no best answer, it has to fit you plan. Some of the considerations are stop losses, money earned, asset allocation balancing, maximum return with tax considerations, accepting losses, change of business environment.
These are just a few of the categories you need to consider. As you start to learn these pieces you’ll really start to find opportunities for investments instead of a bunch of alphabet soup of stock tickers.