More than likely you are well-aware that an investment in stocks has typically been a very good long-term investment throughout the years. Individual stocks are clearly very viable investment vehicles, but they certainly aren't right for everyone. The purpose of this article is to help individuals decide whether an investment in individual stocks is right for them.
5 questions to ask yourself before investing in individual stocks
1. What are my goals for my investment portfolio?
You need to decide what it is you are looking for from your portfolio. If you are looking to invest for the long-term and are looking for simply the best long-term rate of return from your investment individual stocks may be for you. On the other hand if you looking to preserve already earned income stocks are probably not a good choice for you.
2. Will I be able to do homework on the individual stocks?
Many investors overlook this question, but it is very important to consider. If you want to invest in individual stocks you have to be able to put the time into keeping up with those investments. If you have a portfolio of 5 individual stocks or less you should set aside an hour a week to check the latest information on those companies.
3. How soon will I need the money?
This one is closely associated with question number one. You need to determine whether this investment money is something that you expect to invest and leave it their for money years, or if it will be needed fairly soon. The longer your time frame is, the more likely it is that you should be investing in individual stocks.
4. Do I know enough about stocks?
Let's face it, this is a very important one. Though it may appeal to you greatly to have your own investment portfolio, you have to know what you are doing before diving in head first. If you don't know enough to invest on your own, but want to own stocks, mutual funds are probably a good choice for you. If you want to learn more about investing in stocks, I highly suggest you head over to Investopedia.
5. Do I have the stomach for it?
Stocks are not low risk investments, and if you are looking for a smooth ride then you should just forget investing in individual stocks. Volatility can reach extreme levels during periods of economic recession. Many amateur investors end up getting scared out of the market when the market drops quickly, only to see the market perform quite well after they have gotten out. Ask yourself if you understand the risks of investing in individual stocks.
Investing in individual stocks isn't right for everyone, but I don't want to discourage you from it either. Personally, I invest in many individual stocks and believe it is a great method of investing for a young person with many years until retirement like myself. Ask yourself these questions before you invest in stocks. Are they right for you?
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