By Jon L. Ten Haagen
Let’s end the 2015 year and start the New Year of 2016 with the basics of investing and why you should be investing now!
Focus on the principles and you will have the basics of an investment strategy. There is a difference between savings and investing, two of the ways to meet investment goals. Savings is holding money in bank (usual way) accounts, money market funds, or a CD. Usually for a specific short-term need. Investing is buying things of intrinsic value such as stocks, bonds and real estate (examples) that have the potential to provide income or increase in price or both, over the long-term.
Investing does not have to be complicated. You have to learn about the basics as mentioned above (stocks, bonds, cash and real estate). Based on your time until retirement will help determine how much you put into the various categories. Most young investors can afford to be more aggressive (i.e. – more in stocks and real estate) and then as they get closer to retirement you can consider reducing the stocks and real estate and increasing the cash and bonds in your portfolio. Within your investment strategies be aware of when you plan to retire (how many years and your overall health). You are actuarially supposed to live into your mid to late 80s, so you should consider retaining some portion of your portfolio in stocks to hopefully offset taxes and inflations effects.
Being a successful investor requires money, patience, and confidence. You need confidence to stand by your financial decisions, and that requires education. Always strive for more knowledge about investing. I was told years ago about a book called Benjamin Graham’s “The Intelligent Investor.” I found it a great read, but it might not be for everyone because of his writing style. There are also many daily, weekly and monthly publications on investing. Try them until you find the one you like.
There are a few terms you will have to become familiar with:
· Volatility: How much and how quickly the value of an investment changes.
· Diversification: Making several different types of investments rather than just one or two.
· Allocation: Deciding what percentage of your portfolio goes into which categories of investments.
· Risk: all the reasons you may have a loss or a weak return.
· Yield: The income you receive as a percent of what your investment cost you.
· Return: What you get back, based on what you invest, usually measured on an annual basis.
Picking the right investments is the first step in achieving your financial goals. You must also monitor their performance regularly to determine whether they are still right for your portfolio as your goals change and your lifestyle evolves.
To follow up on this, you have to be ready to make adjustments or even major changes if and when you change your goals. Or when the investments you made are not performing the way you expected.
Remember: Do not tie up all your investments in only one or two places. This exposes you to possible greater investment risks. You might want to talk with your family and friends as to what they are doing and seeing in the stock markets. You do not have to take their advice. However, it is good to know what others are thinking. If you do not want to go it alone, consult with a qualified certified financial planner.
In investing, patience is a virtue.
An analogy shared with me years ago says it best: A young boy and his dad were walking out in a field and they approach a big perfectly formed beautiful oak tree. When they get close, the boy picks up an acorn and asks, “What is it?” His dad says it is an acorn and if planted and nurtured over many years, it can grow into a mighty oak tree. If the boy planted the acorn and watered it correctly, then most likely the acorn would eventually grow into a big oak tree. However, if the boy dug up the acorn every couple weeks to see how it was doing, it would never become a mighty oak. Investing is for the long term and given time your chances of success are much better.
If we have not covered a topic you would like to know more about please drop us a note with your query. Here’s to a Healthy, fun and prosperous 2016 New Year.