Perhaps the current rally has you thinking you should get into (or get back into) the stock market. Before you leap headlong into the markets, make sure your own financial house is in order.
To generate wealth and protect your current wealth, perform these steps in order:
- Create a Financial Plan, if you can't do it yourself, hire a fee-based financial planner.
- Create a budget, a current financial statement and a plan for future spending and retirement. (These items are all part of the Financial Plan.)
- No matter your age, make a will (Always a good idea - especially if you have children)
- Pay off your credit cards.
- Pay off your other high interest rate debt (boat loans, loans on toys). Pay off your car loan if it is high interest, keep it if it a low interest rate.
- If you have a family to support, get life insurance.
- Create an Emergency Fund: put six months' worth of expenses in money-market account.
- Determine your risk tolerance. Many web-based risk-tolerance questionaires are free of charge.
- Depending on your age, risk tolerance, and tax situation, determine your gross asset allocation (% in bonds vs. % in stocks). Unless you feel comfortable researching individual stocks, invest in index funds.
- Fund your 401K and IRA to the maximum. Take advantage of the Roth IRA if you can.
- If you have stable employment, and want to own a house, then buy a house that you can afford. Now is a great time to buy.
- Take leftover savings and invest it using the asset allocation you determined in step 9.) Going forward, invest your monthly savings in a similiar manner.
DISCLOSURE: You should perform your own due diligence and consult with an investment advisor before investing.