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Alex Moore
Economist | Dreamer
Asked a question 2 months ago

Hi everyone, my question is about things to do before investing in the stock market - I have set aside an emergency fund equal to one-year’s worth of living expenses. Other than that, is there anything else that I should take into consideration before investing?

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Hi Alex,

Nice job on the emergency fund - 1 year worth puts you into a very strong position. Usually, I'd even say 1 years worth may be a little bit too much (losing potential investment returns) but given the uncertainty around COVID and jobs at the moment, it's probably fine.

Before investing, I think a nice balance needs to be found between understanding what investing is, what happens to your money etc but not going overboard and spending months and months researching.

I think the quickest ways to do this are: 

a) read a book or two on the subject - 'Simple path to wealth' by JL Collins is a great start on the subject but US focused so not 100% applicable. 'Reset' by David Sawyer is a nice UK alternative. I'd read both - total audiobook time is probably about 15 hours for both so not a huge commitment. 

b) Check out my website (the investing posts especially) which should give you the basics needed. https://theprogressionplaybook.com/10

For a new investor - my two big call-outs would be:

  1. Don't try and 'time the market' - very few people can do this, you're better off just being in it invested in good positions.
  2. It's probably a mistake investing in individual companies like Apple or Tesla - whilst these can provide big returns, it leads to a very undiversified portfolio so if one of these companies has struggles, your portfolio will be hit hard. My personal preference is an index fund which tracks hundreds of companies, that way you're well-diversified and own small slices of hundreds of companies.

Hope this helps & let me know if anything more needed.

Thanks,

Luke