Invest money you don’t need

Investing in the stock market is a long-term thing, so you shouldn’t put money in, which you will need in the next 2-3 years.

This is a very basic investing rule, you always have to remember: Only invest money you don’t need. Before investing you have to check out your financial situation first to know how much you can afford to lose. Yes, I said lose, because that’s the point. To keep it simple, only invest what you could afford to lose without that loss having any effect on your daily life in the foreseeable future.

Short-term investing is risky

So how much would that be? It depends of course on your personal situation, but I will give you an examples. For instance, your child will go to college in 2 years, so it’s obvious that you have to save money. Don’t put it in stocks, not even in blue chips. Even blue chips can and some will almost for sure suffer periods of bad performance on the stock market. It’s to risky. You can’t afford to lose this money, because you will need it. Additionally, you can’t predict the stock market as a whole, so you will not be save from the next crash. That’s why you shouldn’t trade, for example, with the money you need for the rent. When you lose, you’ll have to sell at the end of the month again, because without the money you can’t pay your obligations. So, don’t be so foolish.

You should always be invested

To invest money you don’t need, doesn’t mean you should stay out of stocks at all. You can and should invest at any time, unless you are under heavy debt or suffer total misfortune. There are all kinds of complicated formulas for figuring out how much you should put in stocks, but keep it simple and invest what you don’t need. The question always is how much you can afford. First save money, then invest in the stock market. You can start with $100 a month. For example, save one tenth of your income no matter what happens and invest it wisely. When you have not much money, start small and grow big. Keep in mind, that your money will compound and the sooner you start to build a fortune, the sooner you will have what you desire.