What Kind of Money Shouldn’t You Invest in Stocks?

If you're thinking of spending your money on assets and securities for long-term growth, then it's important to make sure that you're taking the right steps without putting yourself in a position that leads to too much risk. Although it's generally not a good idea to keep your cash in a savings account where it can't gain any interest or do anything for your future, that doesn't mean you should spend everything too. One of the most important decisions you'll need to make before you enter the trading or investing world, is how much of your budget you'd be willing to spend. For instance, it's not a good idea to place your money in a long-term strategy for growth if you need it in the next five years at a minimum. The strategy that you're using, and your plans for both long-term and short-term solutions will help you to decide what to do next.

Protecting Yourself and Your Assets

While it's fair to suggest that the stock market eventually always rises – something you can see for yourself with a trading simulator – that doesn't mean that you're going to be earning money all the time. There are always risks to consider, and too much uncertainty in stock prices for the short-term too. A drop of around 20% is pretty common in most years. With that in mind, never start building your portfolio with the emergency fund that you rely on to keep you safe in terms of crisis, or any money that you need to pay out to a crucial bill soon. Tuition funds for your children, or money that you plan to spend on electricity and gas need to stay in your bank account. You might even decide that you want to keep some of your savings around too. For instance, if you're planning on putting a down payment on a new home soon – don't put that cash at risk. The same applies to any money that you want to spend on a vacation sometime soon.

Figuring Out Your Options

For the most part, getting the most out of your cash, and ensuring you don't spend too much, means deciding how you're going to use your money without being too risky. If you're not sure about your options, it might be helpful to talk to a financial professional, or someone who can guide you through the basics of the stock market. A mentor can sometimes come in handy for beginners but remember that no-one but you can ultimately make the decision about how much you should spend, and which money you should protect. This is a rule you'll need to keep in mind as you head into the future of your trading strategy. Although people can offer advice in forums on which solutions to look at, and which assets are working for them, you should never trust someone else's information to guide your investment choices. Ultimately, the only person who's looking out for your financial situation and your future portfolio is you.