A lot of people hear the word “investing” and their eyes glaze over. They think: “That’s way too complicated”, or “That’s something only wealthy old people do.” Others just have too much going on in their day to day lives to even begin to consider it in the first place. We’re trying to change that. The world of finance and investments doesn’t have to be boring and overly complicated. It can be applicable and approachable for everyone!
Whether you’re somebody who’s starting from scratch with your investing education, or you could simply use a little brushing up on your overall financial know-how, you’ve come to the right place. Here are the basics of investing:
What is it?
Investing is putting your money to work in hopes that it will grow over time. For example, instead of having $1,000 in cash, you put $1,000 into an investment and if all goes well, that $1,000 becomes more than $1,000. Now there are many different types of investments out there. Have you ever…bought a house, started a business, saved money in your company 401(k), contributed to an education account for a family member, or purchased a stock, bond or mutual fund? If your answer is “Well, yeah”, then you’re an investor.
Why do people do it?
To make whatever money they already have into even more money. Now you can certainly deposit your funds into a bank account, and the bank will invest it themselves and give you some small amount of interest back. However, investing through other mechanisms gives you the potential to grow your nest egg more quickly.
Isn’t it risky?
Investing can be, but that’s where your risk tolerance comes into play. Risk tolerance is your ability, or inability, to handle the ups and downs of the investment markets. Many factors influence your tolerance for risk: personality, age, time horizon, goals and investment experience. Your financial advisor should know your personal situation, and be able to keep your investments in line with where you are in life.
Another way to keep the risk of investing at bay is by making sure you’re properly diversified. Rather than putting all your money into one type of investment vehicle (i.e. don’t put all your eggs in one basket), you should split your funds up into different ones. Again, it’s your financial advisor’s job to keep your portfolio up to date with your assessed risk tolerance. If you’re unsure if that’s happening, ask! It’s very important to maintain a well-diversified portfolio that is in step with your situation and tolerance for risk.
How do you get started?
Step 1: Figure out where you stand with your risk tolerance.
Step 2: It’s on to hashing out what your goals are. That can mean all kinds of things for different people. They can be goals for right now, ones for a couple years down the road, and ones well into the future. It should be a fun exercise to take some time out of your daily hustle and bustle to think about what you’re truly trying to accomplish.
Step 3: Sit down with a financial advisor to talk about how to get you where you want to go by creating a financial plan. A financial plan is your personal finance roadmap. It’s a living document that will change over the years as your life does.
Step 4: Invest!
Getting your feet wet with the whole investing process can be nerve-wracking, but don’t let it intimidate you. If we can help answer any specific questions you may have, please reach out to us.