DIY investing has become insanely popular the last little while, and for good reason. Investors are tired of paying their banks and mutual fund managers crazy fees. Fees that by the time you retire may be costing you hundreds of thousands of dollars, literally. So you decide to go on your own. It’s as simple as opening a brokerage and buying a couple stocks no?
In reality yes, it is that simple. But, it’s pretty simple to lose 10,20 or even 50% of your portfolio as well. I’m sure by now you know that nothing in life is free. These mutual fund managers aren’t just charging you their management fees because they can. They actively manage and make changes to your investment portfolio. This is your job now, and if you don’t know what you’re doing, you can be in for a whole world of hurt. Financially of course.
In my eyes, these are the 3 most important questions you need to ask yourself before you place a dime of your money into the stock market. A couple of these questions will even apply regardless if you manage your portfolio yourself, or if you get someone else to.
Do I know what I am doing?
This is the question that is solely aimed at DIY investors. Throwing money blindly into the stock market is pretty much the equivalent of closing your eyes and betting your portfolio on a color in roulette. Maybe not to that type of extreme, as in roulette you would lose everything in one go, but you get my point. You’re gambling, plain and simple.
Let’s leave the gambling to high volume traders, the ones whose sole purpose is to time the markets and get out with incremental profits, which, by the way, over 90% will fail miserably at. Your money is important to you, so first you need to learn how to buy stocks.
Once you’ve got the basics down on how the stock market works exactly, you can begin to figure out how to analyze a company fundamentally. This includes analyzing balance sheets, income statements, quarterly and annual reports etc.