Emergency Funds and Investing in Stocks

Assuming you have extra money and are interested in starting to invest in stocks, now is the time to ask “How much should I save for emergencies before I start investing?” There is no right or wrong answer. I have known some people that kept one year of savings in the bank to cover all their payments and live for one year. Other sources suggest three to six months of living expenses should be put aside.  Preference!

Albert Einstein once was asked what were some of the greatest inventions of mankind, and he mentioned one of them being compound interest. Investment czar Warren Buffett would concur.  There is risk associated with investing your money in the stock market.   However, history shows an average of 6.8% return adjusted for inflation over the last 50 years.  That may not seem like much of an increase yet consider if you invest $1,000 now, in 2 years you will increase your investment by approximately $150.  It may not seem like a lot but think “bigger picture”.    When you start investing have your longer-term goals in mind.  What is/are the reasons you are investing?   Are you putting money away for a home, college tuition, car, retirement, or just to invest?   Have a plan!