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How to prepare for investing in the stock market

by , 29 April 2014

Investing in the stock market comes with a host of potential benefits. But it also comes with its disadvantages. So before you risk a cent on any share, you need to ask yourself some questions first. And apply some rules before you start. Let's take a closer look…

The potential risks of investing in the stock market

Investing in the stock market offers you the chance to make inflation beating returns over the long-term. But stock markets have crashed. Just think back to the financial crisis in 2008.

And it’s not just the threat of a market crash you have to worry about, the values of shares move up and down regularly.

Before investing in the stock market, ask yourself…

What are you investing for?
Are you investing for your retirement, your child’s education, a holiday or an income? And what’s the timeline for that goal?

How risk averse are you?
What sort of risk do you like to undertake? Do you play it safe or do you like taking on high risk?

Are you looking for long-term capital growth?
Is this something you want to do over the long-term or do you just want to play the market for a while and see how you get on?

How much can you afford to lose?
If the market plunges, how much can you risk losing? And how long will you wait to see if the market recovers?

Honest answers to these questions are vital so that you know what sort of shares and financial products to invest in.

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How to start investing in the stock market

Once you’ve answered the above and have a better idea of what you want to achieve, make sure you stick to these golden rules…
  • Only invest what you can afford. Don’t risk money on the stock market that you need for other purposes.
  • Never use money you’ve borrowed to invest.
  • Never risk more than you can afford to lose.
Preparation is vital. Start small and learn as you go along, and you’ll improve your chances of investing success.

So there you have it, how to prepare for investing in the stock market.

How to prepare for investing in the stock market
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