Thinking About Investing? Ask Yourself These Questions First.
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Here's your money briefing for Friday, April 23rd. I'm J.R. Whelan for The Wall Street Journal. Over the past year, a lot of people have been dabbling with investing for the first time. If you've got some extra money laying around, maybe you've been thinking about doing it too. But there are all sorts of things you could decide to invest in. There's stocks, sure, but what about bonds or mutual funds or even cryptocurrencies like Bitcoin? How do they all work? And what risks should you be worrying about? Well, we've got you covered. Starting today and running all next week, we'll be bringing on the finance experts from the Wall Street Journal's markets team to break it all down. Think of it as a beginner's guide to investing.
Today, how should you even start thinking about investing? We'll discuss the big questions you need to ask before committing your money to any investment.
I don't think that there's a such thing as saying, I'm just going to throw a bunch of money in the market and throw caution to the wind. Typically, the way that works is eventually you get a surprise.
Coming up, our investing editor will talk about the first steps you can take to be a smarter investor and avoid any of those unwanted surprises. That's after the break.
So let's say you've got some extra money. Maybe you haven't touched your stimulus payment yet. Maybe you just got a nice tax refund or maybe you've maxed out your payments to your 401k investment account and you want to take things into your own hands by investing some of it yourself. Where do you even start? Here to walk us through it is our investing editor, Jeff Rogo. Jeff, thanks for being here.
How should a beginner start thinking about investing?
Thank you for having me.
So Jeff, a lot of our listeners might have some money in a 401k or Roth IRA or a pension fund, or maybe they've dabbled in stocks and they're thinking about becoming more active with their investments. What are the questions they should be asking themselves first?
Well, I think it's important to, the first thing to ask yourself is, what am I saving money for? In your life, you're going to have inflection points. You're going to have the maybe student loans you have to pay off and what the due date is of that. You're going to have a home that you will hopefully purchase someday. You will have a retirement you have to fund. There are these loans. You'll have kids' college. So as you think about you've created a pool of money, you then think about how do I allocate it so that this money can grow financially for those periods in the most tax incentivized way. I don't think you can invest without those goals. If you don't know what those inflection points are, those points that matter in your life, I don't think it's possible to invest.
I don't think that there's a such thing as saying, I'm just going to throw a bunch of money in the market and throw caution to the wind. Typically, the way that works is eventually you get a surprise. So a good example of this is last year, people were day trading, sort of the rise of the Robinhood and retail trader. And I think what we found this year for the people that traded last year was they got their tax bills And they realized, uh-oh, I have a massive tax bill. All that trading, all those capital gains, a bill comes due. And I think that if there had been some forethought last year while they were trading, there's some things they would have done differently. And this sort of speaks to that.
If you don't have a plan, surprises will happen.
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