By Jon L. Ten Haagen, CFP
Q: I am now at a point where I have done a budget and balance sheet and I find I have some extra funds to consider investing in the ‘stock market’. How do I start? Where do I start?
A: Let’s first look at your age, time to retirement, risk tolerance, whether you should look at taxable or tax deferred investing and who to consider being your “financial advisor?”
Start with the premise that “it is never too late to start saving and there is never an amount too small to start with.” Investing means putting your money to work earning more money. List your financial goals, such as college costs, buying a home, getting to a comfortable retirement, saving for a burn-the-mortgage party when it is paid off.
You don’t have to start with a lot of money. Most of us start with a smaller amount of money, which has the potential to produce a positive return over time. You have to start and be consistent by putting away money every week or month. If you invest $50 per week at a growth rate of 8 percent annually, this will grow to over $300,000 in 30 years. Slow, steady and consistent wins the race! Start now!
Now you must make decisions. How much to invest? Where to invest? You must know your alternatives to choose from and what the risks are you are taking with each one.
Investment basics are basically three: stocks, bonds and cash. These are called asset classes and put your money to work in different ways. The returns on these investments vary with each one. Many people invest in all three classes.
• Stocks are ownership shares investors buy in corporations. You have a percentage ownership in that corporation and you will make or loss money as the corporation prospers or fail.
• Cash investments are in a money market, CDs, U.S. Treasury bills, notes and bonds. Maturity rates can be a short as six months to over 30 years. Currently, interest rates are very low; however, your money will not lose face value if held until maturity. You may lose to taxes and inflation.
• Bonds are investments in which you loan money to a corporation, government or municipality. Their interest can be taxable or tax-free in specific situations. Bonds can also have a maturity of ‘overnight’ to over 30 years. The longer the bonds go out to maturity, the more it can fluctuate in value (up and down). If you hold a bond until maturity, you are assured to get your money back along with the interest rate paid to you each year if the corporation or municipality does not default. Bonds are rated as to their ability to repay you. The highest rating is ‘AAA,’ which is the strongest financially. Their ratings decrease as their ability to repay lessens. ‘AA,’ ‘A,’ ‘BBB,’ etc.
Be sure you work with a knowledgeable and competent financial advisor. Be aware that there are many “financial” titles and labels and some mean little or nothing. Ask lots of questions about the advisor’s experience and expertise.
Next time we will discuss the various investments and the ways and whys of investing.
Huntington’s Jon L. Ten Haagen, CFP, runs Ten Haagen Financial Services, Inc., a full-service independent financial planning firm – and now, he is here to answer your questions!
In this bi-monthly column, Ten Haagen will answer your financial questions and help you with his expert financial advice. Don’t be shy – our expert is here for you, so feel free to ask away!
Email your questions to email@example.com today, and let our expert help you.
*Ten Haagen is an Investment Advisor Representative offering securities and advisory services offered through Royal Alliance Associates, Inc., member of FINRA/SIPC, and a registered investment advisor. He is also an active community member, serving on several nonprofit boards and as executive officer of the Greater Huntington Boating Council.
** NEW OFFICE LOCATION: Due to a fire in the office building, the offices of Ten Haagen Financial Services, Inc. are now at 12 Bayview Ave., Northport.
Disclaimer: This column is intended for informational purposes only and is not a replacement for professional services. The author and this newspaper are not responsible for the outcome of following this advice.