Everyone wants to see their money grow. That’s why they save or invest their dollars. But, several obstacles prevent this from happening. One of which is “DEBT.”
Can you invest your money while in debt? Yes, you can. You must remember that besides investing and saving your money, you have to pay off your debts as well.
Differentiate your debts
Before investing in the stock market, you should distinguish the types of debt you have. You must divide your debts into 3 categories such as high-interest debt, low-interest debt and tax-deductible debt.
Now, let us discuss the debts briefly.
1. High-interest debt
High-interest debts are basically your credit card debts. If the interest rate is above 10%, then your debts are a perfect fit for this category. So, you must make it a priority to pay off your debts first before investing.
2. Low-interest debt
Your car loan or personal loan falls into this category. It differs from the high-interest debts by a certain percentage. You must be careful while investing in this type of debt.
3. Tax-deductible debt
Tax-deductible debts are good debts with low-interest rates such as mortgages, student loans, business loans, and so on. That is, the amount of interest you pay is returned to you as tax deductible.
Things to check out before investing in the stock market
After you have sort out your debts, you must now check out these things before you give out your money in the stock market:
1. Investing in stocks is one option to grow your money
Investing in the stock market is just an option to grow your money. Just because the financial media is screaming about stocks, it doesn’t mean it’s the sole way to invest your money. You have several other options like you can keep your money in a savings account, invest in bonds or real estates, or you can invest in yourself by nurturing your future earning potentials.
2. Investing in stocks is risky
Investing in stock market is risky in the short term. There’s a lot of upward and downward movement. So, you have a relatively higher chance of gaining or losing your money. Moreover, there are times when you will witness more down days than up days.
If investing in stocks is so risky, then why will you ever invest in the stock market? You’ll invest in stocks because the stock market tends to accelerate at a rate of about 7% per annum. However, the stock market is good for those who want to invest for a long term; that is, somewhere around the 10-year mark.
3. Investing all your money in a single company’s stock is very risky
You should never invest all your hard earned dollars in the stock of a single corporation. Doing so, you have the tendency to lose most or all of your money. However, you also have the potential for huge returns. For example, Coca-Cola’s stock is as steady as a rock, but that doesn’t mean you can quickly multiply your money, either.
4. Invest in the stock of lots of companies to reduce the risk
People often use this strategy to minimize the risk of investing in the stock market. If you want to invest in stocks, then buy stocks of 20 different companies. It’ll reduce your risk of losing all your money. That is, 20 companies, failing and skyrocketing simultaneously, is pretty unusual. Isn’t it?
5. Look for stocks which offer dividends
The dividend is a small amount of payment that companies pay to each of their stockholders – usually less than a dollar on a quarterly basis. For instance, if you bought 50 shares of a company worth $20 each, that is you invest $1,000; you’ll receive a dividend of $0.20 each quarter. However, investing in stocks that offer dividends is not always healthy for your finances.
You can invest in stocks in spite of having debts. But, whether or not you will invest in the stock market totally depends on you. Last but not the least, you should consult an investment advisor before risking your money in the stock market. Make sure your investment advisor is experienced and doesn’t commit any mistake.