By Jon L. Ten Haagen
Does this sound familiar?
“I’ll start tomorrow. Anyway, I can hardly make ends meet now!”
Remember, the key to financial independence is often not how much you earn, but how much you keep.
This is also true when considering taxable, tax-deferred and tax-free investing. This is for another article.
“I can’t look that far ahead.”
If you fail to plan, you are most likely planning to fail. Be a part of the ‘now’ generation that gets involved in its own plans for the future.
What are the ways to invest? Directly in individual stocks, bonds, and cash or cash equivalents. You can hold these positions in your own name, or jointly with someone else (relative, spouse or a friend). You can buy shares in mutual funds, exchange traded funds and an annuity which can be fixed or variable. This is called buying indirectly. There are also real estate investment trusts and gold, hopper cars and others in public and private partnerships. You can see that this can be a little overpowering and confusing at first.
You can start to invest by opening an account with a brokerage firm, investment companies, insurance companies, banks and independent investment firms, sometimes called wealth management firms. You also may be able to invest through your employer in a retirement plan (401k, 403b, 457). All these various investments become your investment portfolio.
Choosing the best investments that are right for you depends on your timeframe and goals and needs. Are you looking for a long term investment for your future or a short-term accumulation for the purchase of a car or home? You have to look at safety, return and liquidity.
For safety you have to look at the risk involved. Any investing entails some form of risk! To many, the biggest risk is losing money, so they go to conservative investments with little chance of losing money. This would be looking at T-bills and bank accounts. The problem here is that today interest rates are at all-time lows – like less than 1 percent for a year! When you take into account taxes, increases in the cost of living and inflation your money is going backwards, so you have to take into account what these monies are earmarked for. You might consider a variety of investments with different levels of risk that may be less volatile but still have growth potential.
What can you expect to get back on your investments? Some investments give you a promise of a certain return – usually a limited low return. The more risk typically means the more potential to make or lose money. Having said that if you choose wisely and get the right investments for your needs, over time (and time is the operative word here) you have more of a chance of reaching your goals.
How accessible is your money? The money may be needed for financial emergencies which can occur at any time, so you must look at short term vehicles which can be turned into cash within 30 days. These vehicles could be savings accounts, money markets, CDs, U.S. Treasury bills. You may want to stager the maturities so you always have an instrument coming do real soon. If you’re financial goal is longer term for your future, or to leave assets to a charity, family or friends, liquidity is not an issue.
Have a game plan and talk with a financial professional for guidance. Send in your questions so we can answer your current needs.