How to know you're ready to invest
Investing doesn't mean buying a stock on a hot tip from your mom's brother's wife's friend Chuck. Instead, do these things: make sure you have "at least three months of net pay saved for emergencies." Also try to pay off any high-interest credit card debt (Bera defines that as anything over a 5% interest rate). And lastly, stack your cash in retirement accounts. Contribute via each paycheck to a 401k if your employer offers it, and also to a Roth IRA. We'll talk more about that later. That's a lot of stuff to accomplish before you dive into any other type of stock market-type investing, so slow your roll, Jordan Belfort.
Know the financial lingo
Turns out that the NBC commercial you saw between scenes of Saved by the Bell was right. The more you know, the better! Educating yourself will make investing less scary, and there are a couple of good ways to get yourself up to speed. Bera recommends Investopedia as a trustworthy source to help define any financial terms you come across that don't make sense. She also says to stop by Morningstar to help investigate important info like what the expense ratio is on certain mutual funds, and past performance of both funds and stocks. Bera also came up with 17 investment terms worth knowing, including plenty of the ones we talk about here.
Find an investment professional you trust
While plenty of people invest their own money, there are definite benefits to working with a financial professional. First and foremost, they know more than you. Unless you've also gone through the training and experience required to become a certified financial planner, in which case, congrats! So here are some things to look for when choosing someone to work with.
One, is the financial adviser paid through commissions or are they fee-only? That is, do they get a commission when they invest your money in certain mutual funds? Sounds like that could be a conflict of interest, so ask them how they get paid. Many fee-only advisers take a flat monthly fee. Second, are they a certified financial planner? Working with someone who has a "baseline in terms of education and training" is a good idea. And lastly, are they a good fit for you personality-wise? "You should work with someone who you feel comfortable with sharing intimate details of your financial life with," Bera says.
If you're looking for a financial adviser, Bera's part of the XY Planning Network, which can help you find a fee-only CFP to help you get your money right.
Understand that there's risk involved
Stocks and mutual funds go up and down. That's the reality of investing -- you're not always going to make money. That said, hyper-focusing on how your investments are doing is also a mistake. "Don't obsess over it," Bera says. "Let's say you buy stock: once you make a purchase, stop looking at the stock value every day. It's going to make you crazy. People are upset their accounts are down 2% -- it's okay, it's [only] been six months!" Keeping yourself informed is one thing, but tinkering with your investments nonstop is a good way to give yourself a nervous breakdown.
And if you do go down the path of investing in individual stocks, know that you're essentially gambling. "It's exciting," Bera says. "It can be cool when you buy a stock to watch it go up. But know that there's risk involved. Some [stocks] go up and some don't. Ultimately over the long-term, some don't do well. Some companies go out of business. It's important to understand that there are risks involved. [The key] is building a diversified portfolio."