Playing the Stock Market sounds like FUN, but there are 13 Critical Questions you need to Answer before you Risk Your Money in the Markets.
We often hear the term “playing the stock market”. It is a well-known phrase that rolls off the tongue.
But the problem is it can be very misleading.
The wordplay suggests that it is a kind of game that is played for fun, using fun money, like playing monopoly.
But the reality is that the only people who tend to make money in the stock market are those who take it very seriously.
For example, the money you decide to invest in the stock market is usually after-tax cash, this means you earned it and paid tax on it. When you select a stock market investment you invest this money and if you make a profit you will have to pay tax again.
This slippage means the taxman reduces your profits but you are the one taking all the risk. If you lose money the taxman does not necessarily suffer.
Investing as a business.
Investing in the stock market needs to be treated like a business, only then will you be able to treat your money and your time with respect.
Before you invest you need to understand:
- Is the money you are investing important to the running your daily life? You should not risk money that would be needed for food, accommodation or family commitments.
- The stock market goes down as well as up and it tends to go down twice as quickly as it rises. You need to be prepared for that by not over investing.
- How will you treat any stock investing profits tax-wise? Look at the tax advantages of Dividend Reinvestment Plans and Qualified Dividends
- Why are you buying this stock – do you have a trading system or methodology?
- How are you going to record the reasons for entering and exiting the trade?
- What is the risk involved in any investment? For example, are you using leverage? If so ensure you can pay any loses from your investing money, not a bank loan.
- Have you taken a professional stock market training course, so you have the knowledge to succeed in investing?
Once you have these questions in check you will be able to begin investing as a business.
While investing you need to understand:
- How long will you hold the investment? Short-Term investing is higher cost, higher time investment. Long-term investing is lower cost and lower time investment.
- How much should you diversify your portfolio? Will you diversify over many stocks, or use Exchange Traded Funds. Or will you specialize in specific stocks for day trading?
- How many stocks should you own? 1 stock, 5 stock, 20 stocks. The more you own the more time you need to invest to follow and research them.
- What are your criteria for exiting the trade? 5% loss or a 20% gain. Or like Warren Buffett you never sell.
- How can you hedge against risk? Will you use stock options?
- What types of instruments will you use? – Buying the stock versus shorting or buying options
By taking the stock market seriously you can develop a very structured work like approach to your investing. Understanding risk and having a strategy unique to you is very important.
All of these questions and many more we have covered in our highly recommend Liberated Stock Trader PRO training course. Before making any investment, you need expert-level education, this will improve your confidence and give you the mental strength to believe in your investment choices.