Many people hear the word “investing” and think it is only something you can do if you have a lot of extra money to put aside. However, investing even small amounts could allow you to effectively grow your money – if you go about it the right way. Investing isn’t a “one size fits all” endeavor. Rather, there are various investing strategies to choose from, and a qualified investment professional
can help guide you toward investment products that fit your level of risk tolerance and your overall financial goals.
Here are some tips for getting started:
Making the Most of What You Earn
The popular book The Millionaire Next Door discusses
the notion of living below your means in order to gain financial freedom. The second part of its success formula involves making wise choices with the additional funds you’ll free up by spending less than you make. In other words, that cash should be invested wisely to maximize its value to you. Instead of spending your money on current needs and wants, you can build up a nest egg for financial security and future needs and wants.
Taking the simple step of putting money aside in a place where it will earn interest is often the important first step. The concept of investing is actually not that different from the concept of saving
. There are a wide range of investment opportunities that could allow you to take your cash and grow it. The general goal of investing is to generate compounded growth
. This happens when your money ultimately starts making you more money as the return on your investment grows.
What Kinds of Investments Are Available to Me?
Buying a home is one of the first investments many Americans make. In most cases, homes are purchased by taking out a mortgage
. As the buyer makes their monthly mortgage payments, they reduce their loan balance, building equity
in the home. In most areas in the country, home values have steadily increased
over the past 50 years, further helping home owners build equity. Over time, this makes a home a relatively low-risk investment with an attractive return
Another common type of investment is a 401(k) account
. Typically available through an employer, a 401(k) allows employees to save for retirement by making their own contributions and in many cases having their employer “match” that amount. An IRA – or Individual Retirement Account
– is another type of investment account that can be set up through a financial institution and used to save for retirement.
Other types of investments can include “safe” options such as CDs (also known as Certificates of Deposit
) or Money Market
accounts. These investment products typically offer a higher interest rate than a standard savings account, but are still considered safe
due to their guaranteed returns. In other words – you won’t risk losing any of your earnings with a CD or Money Market. However, your return likely won’t be as high with these types of accounts as it would be with higher-risk options. Generally with investing, the greater the risk
, the greater the opportunity for high returns.
One of the most important things for you to decide is how risk-adverse
you want to be with your investing. This is referred to as your “risk profile
”. Evaluating your risk tolerance will help you determine which types of investments are appropriate for your current financial status and life stage. How much risk you’re willing to take on will also depend on how risk affects your overall quality of life. For example, if seeing the market bounce up and down leaves you anxious and concerned, you may want to avoid riskier investments and settle for smaller returns to ensure a greater peace of mind with your hard earned money.
It’s also important to note that you don’t need to – and shouldn’t – put all of your eggs in one basket. By diversifying
your investment portfolio with a mix of different investment types, you can help reduce your overall risk.
Should You Invest on Your Own or Using Advisors?
Modern investing offers individuals a large range of options for how to manage their investments. There are many investment apps
and digital platforms out there that allow for a “do-it-yourself” approach. Although some apps do offer access to investment guidance
, before going down this road, you should familiarize yourself with all of the pros and cons
involved with going it alone. Ensure you have a solid plan in place for your investing strategy. Even if you do ultimately decide to give DIY investing a try, it doesn’t mean you can’t also consult with a financial professional
. It’s always a good idea to talk through your financial goals and potential tax implications with a qualified advisor.
Another option is to utilize a full-service investment advisor
to manage your investments. This type of financial advisor can help determine an appropriate mix of investments and can oversee their performance on your behalf. Many investment advisors are compensated through management fees
, which are generally a percentage of your overall account balance. Other advisors charge a commission each time they make an investment transaction on your behalf, or when they sell you a new investment product. Before hiring an investment advisor it’s a good idea to get a full understanding of the fees involved, as well as exactly what services they will be providing you with.
If you’re interested in getting started with investing, don’t hesitate to contact us
. We’re happy to set up an appointment to discuss your financial goals and investment management