The stock market is a pretty scary place for first timers. Every novice investor enters the stock market with the thoughts of glamorous stories that have inspired them and also made them fear the stock market. So many sayings and warnings plague the first time trader. And, often it so happens that when a middle aged person wants to trade, they are informed that they are too late for the party.
But is it too late?
Not at all.
An investor needs a minimum of five years as a holding period. For someone over 50, they likely have many years if not decades in front of them, left for trading and investing. So, time is still on their side.
With life expectancy on the rise, there is no reason to think that it is too late to invest. For someone in their 50s, they still have another two to three decades minimum, in front of them. Many people look to the stock market when they reach this age because childcare and loans start dropping away and earning power reaches its peak. So, most people want to make the most out of it.
How much Do You Want to Invest?
To determine how much money you want to invest, you should ask yourself first: Where do you want to spend the money and when. Once you have answered this, you can set up a time horizon and according to that time horizon you will be able to determine the asset allocation in your portfolio from stocks, bonds, short-term investments etc.
The second step in determining the amount that you want to invest is to find the right amount of diversification. To create an appropriate portfolio you have to spread your risk over different asset classes and that will tell you how much money you need to invest in order to reach your financial goal within time.
For beginners, it is advisable to use a mutual fund or an exchange traded fund (ETF) as a good equity investment product.
However it all boils down to that one point, when you want to use the money. Your time horizon is extremely important as it will allow your investments to grow at its own pace, flourishing slowly. If you have a shorter time horizon, for example less than five years or so, you should not look to the market for investments as it is too short a time period for successful wealth generation. However if time is by your side and you do not need your investments back in another ten years or so, then it is better to invest in the stock market and watch your money grow every year until you need it.
Money Management Fees
You incur money management fees when you are opting for pooled vehicles like MFs or ETFs. Fees tend to vary but range between 0.25 to 2.5 percent and on an average most fund houses charge you around 1%. Most first-time investors will opt for pooled vehicles from simple tracker funds and then moving on to riskier and expensive actively managed funds. There are of course additional fees for fund management that are ongoing and upfront. The ongoing fees are a bigger drag on your profits and consist of a management fee, administrative costs and marketing fee.
So, talk to your financial advisor and start investing in stocks because it is never too late to invest in stocks!