By Maxine Shapiro, KERA 90.1 commentator.
Dallas, TX – These are confusing times, whether you're a seasoned investor or someone that has just been waiting for the right time to start investing. Sometimes it helps to just go back to the basics. I'm Maxine Shapiro with KERA Marketplace Middays.
According to much of my research and experience, we as investors forget to ask ourselves, "Just how much risk can we take?" Brokers, out of habit, usually ask the potential investor: "How much do you want to make?" In fact, the question should be: "How much can you afford to lose?" And that needs to be answered on two different levels.
First, literally how much money can we lose? If we have a handle on our budget, we can come up with some sort of figure. It does take money to make money. But that leads us to the second part: "What is our risk tolerance?" In other words, do you lose sleep over an office pool? Believe me, I've seen some very wealthy people who have a very low risk-tolerance level. Those people invest very conservatively just to get that good night's sleep.
On the other hand, there's the investor or speculator, we should say, who borders on reckless and doesn't have a worry in the world. This evaluation is imperative.
Gary Schatsky, Chairman of the National Association of Personal Financial Advisors, gives the best advise for the next step. Start slow and pick a well-diversified mutual fund. Schatsky does not recommend individual stocks for the beginner. They increase your risk as well as the potential reward. Give your investment some time.
Discipline isn't always easy, as we are bombarded by ads for online trading sites that discount commissions based on frequency of trading. Schatsky recommends waiting no fewer than five years. When we get comfortable with the ups and downs of the market, then he says we can consider increasing, broadening, and diversifying, consistent with our risk tolerance. In the meantime, we can get knowledgeable about other investment choices.
So whether you feel you missed the boat, or you're not sure if you're ready to invest, a little back-to-the-basics is all that's needed to gain confidence. For KERA Marketplace Middays, I'm Maxine Shapiro.
Marketplace Midday Reports air on KERA 90.1 Monday - Friday at 1:04 P.M.