13 Signs You're Ready to Invest in the Stock Market

To invest successfully, you must be ready -- emotionally and financially. If you're not quite there yet in either category, investing in the stock market could be counterproductive. You might lose interest or, worse, pull your money out at the wrong time.

Test your readiness now with these 13 prompts. They'll either confirm you're ready to build wealth in the stock market or they'll reveal your most pressing financial priorities.

5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, "I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of "5 Growth Stocks Under $49" for FREE for a limited time only.

Investing requires cash over and above what you're already spending. So, to know how much you have available for investing, you must first understand your living expenses.

That may mean it's time to build out a budget. Your budget doesn't need to be fancy, but it should define your essential and discretionary spending. Those values, along with your income, tell you roughly what your investing budget can be.

ALSO READ: These Are the Average Household's 7 Biggest Expenses

Crunching the numbers on your living expenses should confirm that you're making more than you're spending. You might believe that to be true without a budget, but it's important to validate. Regular credit card usage can easily mask overspending.

If you find that your budget doesn't balance, hold off on investing for now. It's too risky for your finances. Work on increasing your income or reducing your expenses as your top financial priority instead.

There is a school of thought that you shouldn't invest until you've paid down all high-rate debt. The numbers support this -- because you'll pay more in interest than you'll make investing.

Still, you may want to start investing before that pricey debt is fully paid down. After all, building wealth in the stock market takes time. An earlier start makes sense only when you have a realistic, manageable plan to pay down that debt.

ALSO READ: Should You Invest While Paying Off Debt? Here's What Broke Millennial's Erin Lowry Thinks

Successful investors are motivated. Without the drive to build wealth, you may have trouble making difficult but necessary decisions. Examples include choosing to invest instead of spend, or staying invested even when the market gets rocky.

Assess your own willingness to make tough decisions for a better financial future. If you're only partially committed, investing may not be for you -- yet.

To invest, you must be comfortable with risk. Any stock you buy can lose value unpredictably and for reasons outside your control. That's especially true today as inflation is running hot and the potential for recession looms.

Investors take on the risk for two main reasons. One, the growth history of stocks proves that the risk is worth the reward. And two, there are ways to manage your risk -- such as diversifying and having a long-term investing timeline.

5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, "I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of "5 Growth Stocks Under $49" for FREE for a limited time only.

A cash savings balance protects you from having to sell your investments at the wrong time (like the day the market is crashing). When unexpected expenses pop up, you'll reach into your cash fund rather than your investment account.

That way, you have the flexibility to stay invested through downturns. As long as you're invested in quality stocks, riding out bear markets generally helps you avoid unnecessary losses.

ALSO READ: Is Your Emergency Fund Big Enough? Ask Yourself These 4 Questions to Find Out

Having an investment plan is another sign you're ready to put your money in the stock market. You know what you want to accomplish, and you have a general approach in mind.

To be clear, following a friend's hot stock tips or buying penny stocks don't count as plans. A better strategy is to buy into broad-based exchange-traded funds to ride on the coattails of long-term market trends. Or, if you are a stock picker, your plan will be guidelines for your decision making. For example, you'd know what qualities make for a viable investment and how you'll handle market corrections.

Diversification protects you from downturns in a single stock or across an entire industry. The more exposure you have to individual stocks and different industries, the less effect each has on your overall portfolio.

The general rule is to hold about 20 individual stocks, with positions across multiple economic sectors. Alternatively, you can invest in index funds. These provide diversification in a single share -- which makes them a good option if your investing budget is small.

ALSO READ: 3 Reasons Diversification Is an Investor's Best Friend

Asset allocation is diversification across asset classes, like stocks, bonds, and cash. It's smart to invest in these different asset types as each responds differently to macro trends. Combining those varying responses into one portfolio can have an offsetting effect -- which contributes to lower overall volatility.

Generally, stocks provide growth opportunity, while bonds and cash provide stability. You can adjust your relative exposures to these classes to match your risk tolerance.

A conservative asset allocation, for example, would be 60% stocks and 40% bonds. If you are young and ready to be more aggressive, you'd raise your stock percentage and lower your bond percentage.

A retirement account with tax perks makes investing easier and cheaper. Contributions to a 401(k) or IRA are generally tax deductible, which lowers your out-of-pocket costs. Plus, taxes on investment gains, dividends, and interest earned in those accounts are tax deferred. That allows your portfolio to grow faster.

The 401(k) has the advantage over the IRA of being fully automated. Once you set it up, the money gets pulled from your paycheck and invested according to your preferences -- with no work from you. This is an easy way to kick off your investing plan.

5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, "I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of "5 Growth Stocks Under $49" for FREE for a limited time only.

The more you know about investing and managing money, the easier it will be to make confident decisions. Plus, investing is more fun when you enjoy the learning process.

Make it a habit to stay in touch with what's happening in the financial markets. Be inquisitive about what you read. Let your interests guide you into investing and personal finance learnings that'll support you in this wealth journey.

ALSO READ: 12 Investing Concepts All Beginners Need to Know

Investing is stressful. Imagine when your account balance rises to $500,000 -- and then the stock market dips by 30%. In short order, you could see your $500,000 balance shrink to $425,000.

If you remain calm when this happens, you're likely to realize that the dip is temporary, as they always are. In that scenario, doing nothing could be your best strategy.

On the other hand, if the stress drives you to panic, doing nothing may not seem like an option. You'll want to exert some control over the situation. Many investors respond to that impulse by selling out and moving into cash. Sadly, selling when the market is down is a common reason why investors underperform relative to the market.

5 Stocks Under $49
Presented by Motley Fool Stock Advisor
We hear it over and over from investors, "I wish I had bought Amazon or Netflix when they were first recommended by The Motley Fool. I’d be sitting on a gold mine!" It's true, but we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Click here to learn how you can grab a copy of "5 Growth Stocks Under $49" for FREE for a limited time only.

After evaluating this list, you should have a good understanding of your financial priorities. It may be time to strengthen your finances with lower debt, more cash, or more separation between your income and expenses. Or you could deepen your understanding of risk management, pick up some stress management habits, or evaluate your own commitment to wealth building.

If you feel great in all those areas, then dive right in. Thirty years from now, you'll look back on today as the best possible turning point in your wealth journey.

The Motley Fool has a disclosure policy.