by George Tucker

Created on: February 26, 2009   Last Updated: June 19, 2009

Investing in the stock market is one of the most convenient and effective ways to put your money to work for you and create wealth. The stock market makes new millionaires (and breaks them) every year.

If you've decided to start investing in the stock market, congratulations! You are going to become involved in one of the most complex, interesting and rewarding of all human endeavors. However the world of the stock market is complicated and the stakes are high. Before you start investing in the stock market there are some key concepts you must understand and priorities you must set.

Before you start investing: priorities

Don't try to start investing without laying the groundwork. Investing in the stock market is a risk, but it should be a calculated risk. So before you start investing, make sure the following points are addressed:

- Emergency fund

Your emergency fund should be 3-6 months worth of living expenses. That includes all your bills, plus food, transportation, a little for entertainment, etc. Your emergency fund exists so that, if times become tough, you won't be tempted to tap into your stock market investments for cash. If you're dying to get started investing in the stock market, then you should at least put as much aside as you can in your emergency fund and set up an automatic investment plan to make up the balance of your cash. Many banks allow you to make small, periodic deductions from your checking account or automatic deposits into a savings account - and this is a great way to save money on autopilot.

Your emergency fund should be held in a no-risk or extremely low-risk, cash-equivalent account. FundAdvice.com recommends the Vanguard short-term investment-grade corporate bond fund (VFSTX, $3000 minimum). A savings account or money-market fund will work, too.

- Setting your investing budget

Now that your emergency fund is established, consider how much money you can invest. You will need an accurate budget that's up-to-date. Determine the amount of money you can invest regularly without straining your budget.

If you've received a lump sum, an inheritance or a bonus, consider investing it slowly, over time. If you invest a lump sum all at once then the roller coaster ride of the stock market may be too much for you, leading to sleepless nights, ulcers, and bad investment decisions.

- Setting your investing goals

Why are you investing in the stock market? Simply to increase your wealth? To save for retirement, or for the downpayment

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