Make sure you have an Emergency Fund!
This week is undoubtedly one of the most important articles in this blog. At first, you may think this article is more suitable for some sort of general blog on personal finance…
Wrong!
Unsucessful investors’ greatest weakness is not understanding their financial situation and how stocks fit in. Often, I counsel people to stay out of the stock market because they aren’t prepared for the responsibilities of stock investing.
This is why so many people sign up the StockPreacher Newsletter on the top of this page, so they can keep up with the ever changing Stock Market in the StockPreacher Newsletter on top of the information you receive from your registered investment advisor, the StockPreacher Newsletter also touchs on certain elements that can aid you with your stock education, for FREE!
Investing in stock requires balance. Investors sometimes tie up too much money in stocks, putting themselves at risk of losing a significant portion of their wealth if the market plunges. Then again, other investors place little or no money in stocks, and therefore miss out on excellent opportunities to grow their wealth. Investors should make a stocks a part of their portfolios, but the operative word is part. You should only let stocks take up a portion of your money. A disciplined investors also has money in bank accounts, bonds, and other assets that offer growth or income opportunities. Diversification is key to minimizing risk.
Your Emergency Fund
Before you invest in Penny Stocks one of the things you need to have is an “Emergency Fund”
First, list all of your cash on your balance sheet. You goal is to have in reserve, at least three to six months‘ worth of your gross living expense in cash. The cash is important because it gives you a cushion. Three to six months is usually enough to get you through the most common forms of financial disruption, such as losing your job. Finding a new job can take anywhere from three to six months.
If your monthly expense are $2000, you should have at least $6000, and probably closer to $12000 in a secure, FDIC-insured, interest bearing bank account. Consider this account an emergency fund and not an investment. Don’t use this money to buy stocks.
Too many Americans don’t have an emergency fund, meaning that they put themselves at risk. Walking across a busy street while wearing a blindfold is a great example of putting yourself at risk, and in recent years, investors have much into investments (such as stocks) that they didn’t understand, and had little or no savings. One of the biggest problems during 2000-2003 was that savings were sinking to record lows while debt levels were reaching new heights. People then sold many stocks because they needed funds for paying bills and debt.
Resist the urge to start thinking of your investment in stocks as a savings account generating over 20 percent per year. This is dangerous thinking! If your investments tank, or if you lose your job, you will have financial difficulty and that will affect your stock portfolio. An emergency fund helps you through a temporary cash crunch.
Popularity: 3% [?]
