Are you looking into the future, and as a result considering saving for retirement or potentially a big purchase coming up in the next few years? Are you overwhelmed when thinking about the complexity of the stock market? Does investing interest you, but you have no idea where to begin? Well, you are not alone, but hopefully after reading through the following tips which will give you a broad overview of important investing factors, your confidence will be boosted and your investing goals clearer!

Tip 1: Pay off high interest debt and create an emergency fund before investing.

Investing is an amazing tool, but the interest gained is not guaranteed. If you pay off your high interest debt first, you are guaranteed to not be charged that interest, and you now have more funds to invest. It is also smart to establish an emergency fund prior to doing any significant investing. Having lots of money in the stock market for retirement won’t do you any good if your vehicle is getting repossessed or your home foreclosed on.

Tip 2: Establish specific goals for your investment purpose.

This tip should be the first thing an individual makes clear when they are considering investing. The types of investments you choose will be based on your purpose for participating in the market. Your goals should be S.M.A.R.T. so that they are realistic objectives for entering the stock market, and you must know your “Why” to format your portfolio to resemble what you seek to accomplish.

Tip 3: Establish your risk tolerance.

Once your goals are set, it is a good idea to better understand your tolerance for taking a risk. You have to keep in mind that the market is not always gaining, and there is an inherent systematic risk of being in the market. Therefore, confirming a risk tolerance level for yourself is important to the structure of your portfolio. Every company has a Beta measurement that is linked to their stock. Beta is a measurement of risk compared to the market indexes. The S&P 500 index has a beta of 1; anything above 1 is considered riskier and anything below 1 is considered less risky than the index. You can use this in your research when determining where your own risk tolerance falls.

Tip 4: Understand how you could benefit.

Investing in the stock market is a great way for your excess funds to accumulate growth through compounding interest. Compounding interest is the process of invested funds gaining interest on interest earned over the course of compounding periods. Let me put that in numbers so you can see the math. In theory, $100 with 10% interest gained is $110 after the first compounding period. At the next compounding period, you earn another 10%, but now your account is $110. That makes the new account balance $121. Over the course of time, you have only put in $100, but after just two compounding periods you have earned $21. This is the power of the market and why it is a great option for potential financial growth. Even with downturns of the market, in the long-term, the market will likely recover and continue to grow. That has been observed thus far since the beginning of the stock market.

Tip 5: Establish a thorough research strategy.

You might choose to control your own investments, or you might choose to seek a professional or professional software to aid in your research. Either way, a lot of research should be done before investing. If you are looking to work with a professional, you will want to learn about their certifications, their values, how they get paid, etc. But if you choose to do the investing yourself, you will want to make sure you have a thorough understanding of the following terms: Beta measurement, dividend/yield, market cap, EPS, and P/E ratio, as well as many other factors. These are basic measurements that are unique to companies and will give you a good sense of the company’s current and future performance in the market.

If you have questions about any of these steps, feel free to set up a meeting with a NEXUS Coach: https://ronblueinstitute.com/nexus-financial-discipleship-center/.