You're fired up to become an investor and make millions, but are you really ready? See whether you fit into one of these investing profiles.
1. "I've maxed out my credit cards, but I keep up with the minimum payments every month."
If you're looking at the stock market as an easy path to riches that will wipe out your piles of consumer debt, look again. Rarely is investing more profitable than paying off debt that you know will cost you double-digit interest rates every year. Attack your consumer debt, and then invest.
Unless you want to give yourself an early heart attack, invest only with money that you know you don't need for at least five years. Don't invest the money you need for debts, medical needs, mortgage payments, utilities, or dog food. Don't even invest money that you hope to spend on a vacation or home improvements next year, unless you don't mind that the vacation gets canceled and the home improvements get postponed.
You're ready to invest when you have cash that you don't need for five to seven years, and that you don't mind subjecting to some risk for the opportunity to make money.
2. "I have an hour every day, and two on Sunday, to devote to market charting and stock picking."
By those criteria, no one with a job, or a family, or even a stamp-collecting hobby could become an investor. You don't need a ton of time, and you certainly don't need to watch the market's day-to-day gyrations. But you do need some time. You don't want to leave your money on autopilot, unless you've planned your investments that way.
If you're struggling to find 30 seconds at the end of the day to brush your teeth, buy an index fund and forget about it. You're ready to invest when you can regularly commit a little time to learning about and overseeing your investment choices.
3. "I inherited $10,000 from my Aunt Mabel and want to make a killing right now by dumping it all into penny stocks."
To become an investor, you need to be ready for the long haul. If, like the rest of us, you haven't inherited a pile of money or won the lottery, you need to have the stamina to build your investments little by little. You also need to be prepared to forgo instant gratification.
Consider some top-performing stocks over the past decade, such as Hansen Natural (Nasdaq: HANS ) , Celgene (Nasdaq: CELG ) , and Green Mountain Coffee Roasters (Nasdaq: GMCR ) . Each is worth more than $30 for every $1 you invested, and Hansen has returned more than $200 to the dollar. But here's the catch: It took 10 full years for these stocks to earn those returns. You're ready to invest when you have long-term investing goals and the patience to wait.
4. "I have an M.B.A., C.P.A., C.F.A., and B.F.F. after my name."
You don't have to be a financial whiz or management guru to become a good investor. You just need a good dose of common sense and the will to learn a thing or two about stocks. If that's the case, you've come to the right place.
For more help getting started, keep reading and learn ...