4 Questions to Ask Yourself Before You Start Investing
Investing has long been considered a great way to build wealth. If you are ready to invest, below are four questions to consider before you start the process.
1. How would you rate your knowledge of investing?
If you could rate your investment knowledge, what would be your score? Would it be outstanding, moderate, or below average? You don't need to be on wall street to start investing, but before you start, understanding the basics about assets you could invest in is important. You also need to know about stocks, exchange-traded funds (ETFs), and mutual funds. These investment vehicles allow you to gain exposure to many different assets.
You can learn about investing by seeking information on the internet, through investing podcasts, or by visiting a wealth management firm (ex., Fidelity or Vanguard).
Tip: CapWay is an excellent resource to guide you through understanding numerous finance topics.
2. Are you taking advantage of a 401(k) with matching dollars?
If your employer offers an employer-sponsored 401k or retirement plan and contributes matching dollars, you should take full advantage of this benefit. Typically, the match is dollar for dollar, and it's an easy way to grow your retirement account with free money. For example, a company that has a dollar-for-dollar match of up to 3% will match every dollar you put towards your 401k up to 3% of your gross pay.
If your employer offers an employer match 401k or a retirement plan, you should start investing in your retirement account immediately.
3. Do you have an emergency fund?
While investing will likely allow you to produce good returns over time, the key phrase in this sentence is over time. The stock market has its ups and downs in which you should be prepared to keep your funds invested even in those downtimes.
An emergency fund prepares you for the unknown and gives you quick access to those funds when needed. An emergency fund is typically 3-6 months' worth of expenses and can shield you from the various risks associated with investing.
4. Are you free of debt?
If you have debts such as school loans, a mortgage, credit cards, or auto loans, focus on paying off the debts one at a time. Start small and map out how much and how long it would take to become debt-free, and work towards your goal daily.
If you answered yes to all of these four questions, you are likely ready to start investing.