So you’re thinking about investing in stocks? There’s a lot to consider before finally taking the plunge into individual stocks. Additional risk factors, new learning curve, costs involved, liquidity and where to start, are just a few of the concerns. But when you finally boil it all down, the biggest thing to consider before buying stocks is time. Do you have the time? There’s a finite number of hours each week. Are you willing to give up some of them to manage your money?
Investing in stocks is more than just getting that “hot stock tip” from your neighbor or friend. You may be able to get by on luck a couple times betting on stocks this way, but it usually turns out bad. In reality it involves keeping up with all the news, ratings changes, and earnings reports. And that’s just the day to day stuff. There’s also the initial research that needs to be done with stock screeners, research sites, financial statements, balance sheets, and a whole list of other tools. So you still want to invest in stocks?
No one’s a bigger advocate for stock investing than I am. I think the pros out way the cons in the case of stock investing. But it helps that I’m a certified stock nut. I spend about an hour each day just reviewing my investments. Tack on another hour or so for researching other stocks. I’m looking at about 14 hours each week that I put into my stocks. Which might be borderline OCD now that I think about it.
As fun as it is for me, the process really isn’t exciting. Financial statements and balance sheets don’t conjure hours of fun filled entertainment. It’s downright boring at times. But the enjoyment comes from the final results over the weeks, months, and years. But it’s not for everyone. If you can’t or won’t put in the time, don’t invest in stocks.
So you’re think, “there’s no way I’m doing 14 hours of research every week.” Remember, 14 hours is my time and I enjoy it. Plan on spending about an hour per stock each week. Five stocks, five hours of work per week. Which shouldn’t be too much time for your money. Divide the time up throughout the week like I do or knock it out on the weekend. Eventually you’ll find a system that works for you.
The Time Impaired Alternatives
Not willing to jump in 100%? There are a couple alternatives. The first is simply to use a smaller portion of your portfolio. Something along the lines of 10%. Start with one or two stocks initially. You can always add more as your comfort level grows. Or maybe you’ll find that the time just isn’t worth giving up.
The second option is to start using ETFs. If you already invest in mutual funds or index funds, ETFs are a natural bridge toward investing in stocks. For almost every stock or mutual fund there is an ETF you can substitute for it. You buy and sell ETFs just like stocks, but still get the diversification of a mutual fund. Also consider that many brokers offer commission-free ETF trading, it might be cheaper in the long run. If you’re at all skittish about the time requirements or taking the first step, I highly recommend ETFs. There will still be time involvement, but on a smaller scale.
Time is a hot commodity in any busy life. When the decision comes down to doing stock homework or something else, it’s easy to put your money on hold. But that choice comes with risks. You may want to hold off on investing in stocks for now or try one of the alternatives.