Your success as an investor, whether off-line or online, depends on your attitude. "Money ranks with love as man's greatest source of joy, and with death as his greatest source of anxiety," said economist John Kenneth Galbraith. So are you a person who looks for opportunities and ideas? Or do you engage your mental brakes out of the fear you'll make a mistake? You should try to find a happy medium that accounts for your stage in life and is based on a realistic assessment of your finances and goals. The summertime lull in trading is a great time to do your homework.
Though you can use programs such as Intuit's Quicken (quicken.com) or Mint (mint.com) to keep tabs on your expenses and set up a basic plan, you might want to check out Financial Fate (financialfate.com), a free program that walks you through goal-setting scenarios. This is a small download that runs on PCs, and helps you come up with annualized estimates of where you are and where you'd like to go. Another planning tool is Personal Capital (personalcapital.com), which can import data from your existing financial accounts and create a picture for you.
You'll need to consider three buckets for your investing: Cash savings for immediate needs and emergencies, short-term investing for goals such as a down payment on a house or a vacation, and long-term investing for items such as retirement or your newborn baby's college education. Take a hard look at how deep you are in debt, as well -- your car loan, your credit-card bills, and your mortgage. Get rid of the credit-card debt as quickly as you can; it's a rare investor who is able to generate the 18% (or more) interest that your unpaid credit-card balances rack up.
The key to investing is to plan how much you'll put away rather than having it happen haphazardly. The younger you are, and the longer your investment time frame, the more risk you can handle in your portfolio. To assess the level of risk you're willing to handle, check out the investment risk-tolerance quiz from, of all places, Rutgers University's agricultural extension program (njaes.rutgers.edu/money/riskquiz/default.asp). This quiz will give you an idea of the type of risk you feel you can handle with your finances.
How much financial savvy will you need? Since you're reading Barron's, I'm going to assume you are at least interested in the markets and in the ¬underlying pressures that influence their movements. You need to be comfortable doing some arithmetic and know the basics of how a business is run, so you can figure out the components of a company's financial statements and how changes in the economy might ¬affect an individual firm. The ability to evaluate a graph that plots a stock's price over time is a necessary skill.StockCharts.com has an education module called Chart School that walks you from basic charts all the way through the intricacies of technical analysis (though you don't have to go that far).
At some point, you have to ask yourself whether you want to go it alone, or work with an advisor. I'm a dedicated self-directed investor. There was a time when I had some help, but I'm an independent sort, knowing that nobody out there is as interested in my financial future as I am. Perhaps you are more trusting or just need some help to get started; Barron's regularly lists financial advisors who can offer lots of ideas.
But if you're thinking of striking off across the wilderness and opening an online brokerage account, make sure you're comfortable. I've spent a lot of time testing my investment ideas using virtual trading sites, such as the Virtual Stock Exchange Games at MarketWatch (marketwatch.com/game).
What are the best online brokers for the trading newcomer? I'll tell you next time.
0 comments:
Post a Comment