This is perhaps the most important reason to invest in stocks. They can help you achieve your goals. So you should take some time and consider what your goals are before you get started. This will guide the types of investments you make in the future.
When I was a stockbroker we were always told to “know your customer.” Since you are taking charge of your financial life, and now your own customer, it pays to, as Plato said, “know thyself.”
That said, I’m not going to go into any big goal setting dialogue here. There is plenty of good material written about that. But here are some thoughts to consider.
Saving for Retirement. This is one of the main reasons people invest. They set aside a percent of their income and invest it so it will provide them income when they retire. Put another way, they work for their money for many years so their money can work for them later in life.
Not enough people are doing this in sufficient amounts. I read recently that the baby boomers may be the first generation that cannot retire. So I would encourage you to take a good look at this goal.
Generating Retirement Income Today. You really should consult with a retirement counselor on this, but here are some thoughts.
Your focus is very much on protecting your retirement nest egg and generating income to live off of. So you will be more interested in dividend paying stocks and fixed income investments like bonds.
It used to be that people in this category would have more bonds in their accounts, but with the historic low interest rates, this doesn’t work as well today. And there are some solid world dominating stocks that are actually paying greater dividends today than the more conservative bond investments. And there are analysts that feel some of these stocks carry no greater risk.
So many investment newsletters advise a higher percentage of solid, dividend paying stocks to make up for the low interest rates than was recommended in the past.
Only you can decide this. The best indicator will be how well you sleep at night with the investment mix you pick. But stocks will be part of most people’s portfolio to some extent to help keep up with inflation.
Saving For College. You may be investing and saving to fund college tuition for your children. Given the high cost of tuition these days, stocks and other investments can help you achieve this goal.
Have Your Money Work For You. This is a great reason to invest. After all, you work hard for your money, why not make it work for you as well.
Investing For The Thrill Of It. Okay, now we’re starting to get close to the gambler mentality.
While there definitely can be a thrill to investing (sometimes too much of a thrill), you need to be careful with this one or you will just lose all of your money.
A good suggestion I’ve seen some financial advisors make is to use 5% of your investments for the more high flying risky stocks. This way you get it out of your system. And you may actually hit the jackpot, or more likely, if you don’t, you have only lost 5% of your account.
Learning About The Stock Market. This is a pretty good goal to my way of thinking. Because things can get pretty emotional when you have money on the table as opposed to just reading and thinking about investments in theory.
The more you know before you put money on the table, the more likely you are to invest, buy and sell rationally. But at some point you have to act and make an investment. So don’t use this as an excuse for “analysis paralysis.”
Any other personal investment goals and reasons you may have.
The point of this chapter is to encourage you to think about what you are trying to accomplish with your investments. But I wouldn’t over think it. Just consider all the reasons and then get started.
So lets do just that. Let’s get started by covering a few basics, like what is the New York Stock Exchange anyway.