Why Use a Checklist?
Most beginner investing losses don't happen because of a lack of research — they happen because rules get skipped when emotions are running hot. FOMO, a viral stock tip, or a headline-induced panic are the real culprits. A pre-flight checklist — like pilots use before takeoff — forces the same deliberate questions every time, before the impulse fires.
How to use it: save these 10 questions to your phone. Before pressing buy, mark each yes or no. If fewer than 7 are “yes,” skip the trade today and stick to your core DCA contributions.
1–3. Position — Size and Source of Funds
1. Is this core or satellite?
Core = long-term anchor holdings (e.g., S&P 500 ETF). Satellite = thematic bets, individual stocks, small experiments. If you cannot categorize it, do not buy. See portfolio strategy.
2. What is my position size limit?
Example: with $100,000 invested, no single stock exceeds $10,000 (10%). “Just this once, 20%” stacks up and lets one stock dominate your outcome.
3. Is this money separate from emergency funds and living expenses?
Keep 3–6 months of living expenses in cash, uninvested. Buying with money you may need next month makes panic-selling almost inevitable.
4–6. Numbers — Reason and Counter-Scenarios
4. Can I write the reason in one sentence?
“My friend made money” is not a reason. Valid examples: “I am dollar-cost averaging into a low-cost S&P 500 ETF for 10 years” or “This company has grown revenue 3 consecutive years and generates positive FCF; I am adding 5% as satellite.”
5. Have I checked valuation or product structure?
For stocks: compare P/E and sector peers. For ETFs: check the tracked index, expense ratio, and whether it uses leverage — see the ETF guide. Leveraged and inverse ETFs are generally not suitable for long-term DCA.
6. Have I written down 3 bearish scenarios?
Example: rates spike, earnings miss, regulatory change, or currency move. If you cannot articulate the risks, you are likely in confirmation bias mode — see investor psychology.
If an earnings report is imminent, also run through the earnings season checklist. For finding the financial numbers, see the financial statements guide.
7–8. Costs, Tax, and Account Type
7. Have I accounted for currency and fees?
For US stocks bought in Korean won, the USD/KRW rate affects your returns in won — see the currency guide. Trading frequently to average in on small price moves can erode more than you gain once fees are included.
8. Am I using the right account type?
Tax-advantaged accounts (ISA, pension savings, IRP) have different caps, tax treatments, and eligible instruments. See ISA & pension accounts, US stock tax for Korean residents, and Korea-listed vs US-listed ETFs.
Cost intuition
On a $10,000 purchase, a combined round-trip cost (FX spread + broker commission) of 1% means you start $100 in the hole. Every unnecessary trade chips away at compounding — see compound interest.
9–10. Psychology and Exit Plan
9. Am I buying because of a stimulus?
Breaking news, a group chat pump, “limited time” framing. The more the Fear & Greed Index reads “extreme greed,” the more cautious new bets deserve to be.
10. Have I pre-written what I will do at -20% and +30%?
Examples: for core ETFs — maintain contributions and rebalance only. For satellite stocks — -25% triggers a thesis re-evaluation meeting; +30% means trimming back to the size limit. “I'll figure it out then” is not a plan.
Quick Reference: All 10 Questions
- Is core vs. satellite clearly defined?
- Am I within my position size limit?
- Is this money separate from emergency savings and living expenses?
- Can I write the reason in one sentence?
- Have I checked valuation or ETF structure (expense ratio, leverage)?
- Have I listed 3 bearish counter-scenarios?
- Have I factored in currency and transaction costs?
- Is this the right account type (taxable, tax-advantaged)?
- Am I acting on a trigger (hype, tip, sudden spike)?
- Have I pre-written my -20% and +30% response rules?
Situation-Based Quick Guide
- Scheduled index ETF contribution: Run through items 1–3 and 7–8 quickly. Do not change the strategy every month based on market mood.
- First purchase of an individual stock: All 10 items. Add earnings guidance check if a report is due soon.
- Crypto or leveraged ETF: Satellite with a lower size limit than normal. See the crypto guide. Options are a separate high-risk category.
- Dividend-focused buy: Do not fixate on yield alone — check sustainability and tax treatment. See the dividend guide.
Common Mistakes
Postponing the checklist to "later"
The moment you feel the urge to skip it is exactly the FOMO moment the checklist is designed to catch. Bookmark it now.
Forcing "yes" answers
If you are rationalizing a questionable answer to clear the threshold, the checklist has failed. Uncertain = no.
Mixing core and satellite logic
Applying short-term trading rules to your index ETF, or vowing to hold a meme stock for 10 years, are both category errors.
Deferring tax and account questions
After-tax returns are what compound over time. Check once before buying — not years later when it is too late to optimize.
Advertisement