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April 15, 2011

Get Ready, Get Set, Wait For It, Wait For It, INVEST!

Hey guys, how’s it goin’?

So you’ve got your emergency fund, you’ve paid off all of your debt (or a significant portion), you’ve made arrangements to pay your bills on time, every month, you’ve contributed as much as you can to your retirement accounts, and you are putting away a little bit of money every paycheck as pure savings.  You know you want to get in on that sweet stock market income, but you’re not sure what to do.

1.)  Read.  Read a lot.  Start with the Intelligent Investor by Benjamin Graham (psst, check out the Amazon widget in the sidebar.)  This is about as close as it comes to a holy book of investing.  Anyone who makes a lot of money in the markets will tell you that this book is the starting point.  If they don’t, get an autograph, because you are speaking to one of the luckiest people in the world.  This book will get you in the right frame of mind and give you all the knowledge you need to start investing.  It’s also a doorstop book and densely written.  If you can get through it, chances are you have the right temperament to invest.

2.)  See number 1.

I’m being dead serious.  Investing is not something to be entered into lightly.

Baseball is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer.” — Ted Williams

Swap baseball with investing and you’re not too far off the mark.

There is an entire industry dedicated to picking stocks.  These are folks whose full time job it is to pick stocks.  They have the luxury of large pools of capital, research assistants, expense accounts, every resource you can imagine and the best of them can’t beat the market half the time.  Sure, there’s an occasional superstar like Bogle and Buffett.  But those guys are extreme outliers who will be the first to admit that their skills didn’t come easy.  They succeed because they work their butts off every day.

Until you’ve done your research and have come to a good understanding of how the market works, you don’t have any business picking stocks.

Now, that doesn’t mean you shouldn’t invest.  It means you need to gear your approach to appropriate investment vehicles.  If you don’t know how the markets work and/or you don’t have the time to spend researching individual stocks, then investing in individual stocks is the wrong strategy for you.  The good news is there are right strategies.

While you’re doing your homework, you can put your money into an index fund.  The same basic rules for retirement investing apply to regular investing.  Pick a fund with a low expense ratio (less than 0.5%) and start making regular buys.  Be careful that you don’t spend too much on trading fees (I never spend more than 2% of the buy on trading fees.)  Don’t get nervous.  Just keep pushing ahead.  There will be bad times, there will be good times.  The key is to not lose your head and let it ride.

By the time you’ve thoroughly absorbed the Intelligent Investor (psst.  See the Amazon widget in the sidebar,) you’ll have what you need to start investing in individual stocks.

Until next time, keep on saving!

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