We all experience the struggle to learn how to manage our money and become better budgeters and better savers. But, once we get to the point of developing good saving habits, which is the hardest part by the way, some of us let it stop there instead of taking it to the next step, investing. Saving without investing is not a completed process if you’re looking for optimal financial stability. At the very least, our saving should be invested to the point to keep up with inflation! We all want our money to grow and work for us, and investing is the key to that. If you’re interested in starting your own investing journey, read on as we talk about some of the top do’s and don’ts for investing.
1. Brush up on financial literacy! One of the biggest things you need, when it comes to investing, is education. You don’t have to be a financial genius or be able to analyze the market, but you should know enough about how money works and how to make it work for you! Being financially educated means knowing your current financial situation and being thoughtful about your financial future. In our business, we have people who think they aren’t ready to invest when the opposite is true. You don’t have to have millions to start to invest. The important thing is to start as early as possible, even if you’re only able to start with a small amount. Even the smallest amount you invest will grow due to compounding interest. When you’re able to free up more money in your budget, you can always increase your contribution over time.
2. Invest with a plan! Having a goal in mind will help you be more consistent with saving. Also, make sure that you manage your expectations. A lot of mistakes are made from not having the right mindset when investing. With the right expectations, you should be prepared for any scenario and have no problem sticking with your initial investment plan. The only caveat to this is if you have an unexpected life change that could influence you needing to be more aggressive with your strategy. In this case, you’d want to consult your financial advisor for the best plan of action.
3. Diversify your investments! Make sure that you are well diversified. This shouldn’t be hard to do nowadays with technology and online advisors that can assist with arranging a well-balanced portfolio based on your goals. If you need assistance with finding what’s right for you, a good financial advisor can help you with that.
4. Be aware of fees! Our last point for what to do while investing is to try to keep fees as low as possible. High fees on your accounts are the silent killers to your performance. If you’re paying too much in fees, your investments aren’t growing as fast as they could. A solution is to make sure you work with the right advisor who will find the best investment options for you so that you have the best outcome - which is more money coming in than going out.
Just by virtue of reading this blog, you are already on the path to investing the right way, but we must address the things that you should avoid when beginning to invest.
1. Don’t allow your emotions to run your investing decisions. We advise against this because emotionally charged behaviors tend to lead to bad decisions. In the world of investing, this could mean putting yourself in bigger trouble when trying to avoid a loss. Even more so, you could suffer more of a loss because you missed earning potential when you decided to get out of the market for fear of losing money. The market has a pattern and the best thing for your investment goals is for you to stay in the market. Things like compound interest and dollar cost averaging help you the most over time when you just stick with it. When you let your emotions change your investing strategy, it’s not just a poor decision in the moment, it also can set you back from reaching your short and/or long-term goals by the originally projected time.
2. Don’t try to be a market timing genius. Nobody knows what will happen with the market. So, by waiting for the perfect time to invest your money, you’re costing yourself much more in the long run. Don’t try to time the market! Instead, after having a conversation with a fiduciary advisor who believes you’re ready to invest, open an investment account and be consistent. In this context, consistent means making deposits of the same amount to your account each month and by doing so you are participating in the dollar cost average. This is a very efficient way to invest instead of waiting for the best moment.
3. Don’t try to chase performance. I hear all the time people being frustrated about how they missed purchasing Amazon stock when it was low or Bitcoin. I feel like there will always be another stock out there that will do great like Amazon, we just don’t know which one that will be; I don’t at least. I’d like to point out that if you’re chasing performance, it’s likely your looking for single stocks that you think will overperform the others. This is stock picking, not investing. Instead of chasing single stocks and waiting for the miracle to happen, it’s best to set a goal and create a diversified investment portfolio inclusive of mutual funds where you get a range of stocks and bonds.
4. Don’t let outside noise influence your investing strategy. Avoid reacting to hot tips in the media or from friends and family. This type of noise can be misleading and it’s probable you’d lose more instead of getting rich quicker. On the same token, if you’re hearing it from the media, others are watching it too, so you’re not beating anyone to the punch with this type of information. Now, before you think we’re anti-public information, we’re not. There is nothing wrong with getting information and digging for more information about an investment that you are getting into. Actually, that’s how it should be. You should be as informed as possible and do some research. Our advice is to avoid reacting to hot news about stocks going up as that might be too late for you to get in and you might end up paying too much for something that isn’t right for your investment goals.
If you’re ready to start investing, but not sure where to start, please feel free to schedule a personalized financial planning session with our advisors. InvestEd is in the business of helping people reach their financial goals.