We hate surprises and you should too! Here are our top 5 considerations to understand before opening a brokerage account. The goal of this article is to mentally prepare you for when the stock market. Especially when it does what it normally does, you can be ready and not get stressed from the surprise.
Consideration #1: The Market is Volatile and Unpredictable
The Market does not appreciate in a straight line. If it did, everyone we know would be fully invested in stocks. You should expect volatility when investing for the long term. In fact, it would be very abnormal if the stock market is always calm and stable. Naturally, people will feel happy when the market is up and sad when the market is down. And so, they are inclined to buy into the market when it is up and sell when it’s down. Yet, research and studies show, this type of emotional investing will yield a far inferior return. It is far better to take your emotions out of the market and ride the market waves.
Consideration #2: Money That Goes Into The Stock Market Is Money You Do Not Need
If you need money to buy a house, pay your tuition, pay bills and pay off debt, then you shouldn’t invest it in the market. It is our humble opinion, that this money has no business being in the stock market. Pay off those debt and set yourself free of financial obligations. The money you put in the stock market is money you won’t need for at least 5 years.
Consideration #3: You Need To Have a Passion and Conviction for Investing
Nothing is easy. If investing in the stock market was easy, everybody we know, would be doing it too. To succeed in anything “hard” you must have strong passion and conviction. Investing is the same, you need to have a passion and conviction for investing. You need to enjoy watching your portfolio grow. You need strong belief that your strategy (which we will teach you) will succeed in the long term.
Recessions will come from time to time. When it does, there is a high chance your portfolio will take a dump. You will feel miserable. The market will test your passion for investing and the conviction of your investment strategy. So, how do we maintain our passion and conviction during these market turmoil? If you want to own stocks, you need to see yourself as a happy business owner of great American corporations. The recession will end, they always do. These companies will continue to do well and thus, their stock price will follow. You also have to believe that America will still be a good place to do business. If you don’t have these beliefs, successful stock market investing will be very difficult for you.
In the last Great Recession, countless people gave up on the American Dream and sent their home keys to the bank. They also sold stocks at incredibly cheap prices. They gave up and wanted nothing to do with homeownership or stocks. Looking back, it was the mother of buying opportunities in our lifetime. If you view your home as a safe place to live or raise a family and not focus on the home price, you would have been fine. The same applies to stocks. You are not a “stock owner.” See yourself as a business owner of American Corporations that will still be here after we are gone. Their stock price will fluctuate like they always do, but they will be fine over the long term. With passion and conviction, you push yourself forward. You make the effort of researching, doing due diligence, keeping yourself educated. It is critical to have these two traits to be a successful investor.
Consideration #4: Know Your Risk Tolerance
What is your risk tolerance? Risk tolerance is your ability and willingness to stomach the swings in your investments. Everyone has a different risk tolerance. What is right and perfect for us, may or may not be right for you. The market’s volatility may be stressful for you. If you lose sleep or get overly worried about the stock market, perhaps you need to own less stocks. Perhaps the stock market is not for you. Ultimately your health is more important. In the long run, we believe everything will be fine, but is it worth the immediate stress to you? Sometimes, you don’t know you risk tolerance until you start investing. There is a learning in everything.
Consideration #5: There is NO Crystal Ball
“The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next.” – Ursula K. Le Guin.
The future is uncertain. The numbers we study are based on past performance. No one can predict how the future outcome will be, whether this company will have a great year or not. There is no crystal ball to predict future outcomes. Yet we are true believers in the American economy. We believe America is and will always be a good place to do business. And so we believe that the stock market will do fine in the long run. We take our optimism and teach others who believe in the positive future outlook as we do.
These 5 Considerations are our Golden Rules
Study them, remember them, go back to them in the future. These rules apply to anything in life so ask yourself if they make sense to you. If they do, we’ll take you along for the journey.
Mark & Jean-Marc
The Investing Brothers