Many new investors see the stock market (and other investment opportunities) as extraordinarily complex mechanisms that they may never fully understand.
And in a way, this is true.
The stock market is made up of a complex network of businesses, buyers, and sellers whose actions can be swayed by a myriad of factors. Tangible investments like real estate are also beholden to complicated factors like local property tax, changing demographics, and the real estate market at large.
However, this doesn’t mean that you should move on hiding all of your money under the mattress as the next best option.
While investing may seem hard and needlessly complex, it really doesn’t have to be. A lot of complicated processes and strategies can be simplified.
You don’t need to be a stock day-trader who is keeping up with market trends by the minute.
You just need to learn the basics and develop an investment strategy that works for you.
Strategic Allocation
It’s easy to feel overwhelmed about where to put your money. Fortunately, there’s one word that will help make this easier and reduce risk at the same time: diversification. You should never put all of your eggs in one basket, so finding the right strategic allocation for you should be your first priority.
Here are a few good places to start:
- Mutual Funds – Mutual funds offer steady growth and minimal risk.
- ETFs – ETFs are like mutual funds that are bought and sold like stocks.
- Retirement Account – If you want to invest and save for retirement at the same time, consider a tax-deferred account like a traditional or Roth IRA.
- Real Estate – Investing in real estate can provide you with a place in which to live, operate a business, or convert into a rental property, all while (hopefully) accruing value over time.
- Stocks and Bonds – Stocks and bonds are a great way to invest in companies or industries that you like, but if you’re not ready to dive in headfirst, consider using a financial or robo-advisor.
These aren’t the only ways to allocate your assets, but they are a few of the most common asset classes and investment vehicles. Allocating your funds strategically between some or all of these categories will help you maximize earnings and minimize risk.
Know the Course You’re On
Investing forces you to ask some tough but important questions. Why are you investing? What kind of future do you see for yourself? Do you want to maximize your retirement savings? Are you interested in ethical investments that reflect your core values?
All of these questions will help you choose the right path for your particular circumstances and goals.
If you show up to a bike race with training wheels, it’s going to be a bad day for you. This is why you need to focus on setting goals and finding the best investment strategy to meet those goals.
Without these strategies and goals, you could feel like you’re in way over your head (or on the wrong track entirely).
Develop Your Strategy
Even if you feel like you’ve found a good strategy for yourself, you should never close yourself off to change. As you grow, your investment strategy should grow, too. Maybe you’ll get a new job that pays 20% more than your old one. How much of your new earnings will you put toward investments? Will these extra assets allow you to take on a bit more risk?
While you should always be open to change, you shouldn’t constantly tinker with your strategy. Just like a good racing bike, a good investment strategy requires regular maintenance — nothing more and nothing less.
However, if you try to make too many changes too often, you could end up doing more harm than good.
Minimize Costs and Maximize Progress
Nothing in life is free and investing is no exception. Many funds or investment vehicles have ongoing costs, not to mention the taxes you’ll need to pay on any earnings (now or in the future).
Fortunately, taxes are like the wind; everyone is going to have to deal with it at some point, but there are ways to limit your exposure.
Having an efficient tax plan is like having a power meter on your bike. You will know how to allocate your energy.
Additionally, choosing investment vehicles with low ongoing-costs can help save you money on the front-end. The less you pay to invest, the more room you give your money to grow. In short, make sure to find high tax deductions and low-cost investments to keep your portfolio growing for the long-term!
Make It Systematic
Do not rebuild your investing system every month. Once you have a strategy that works for you, automate it. Regular contributions through payroll, or on a specific date each month will go a long way toward helping you accumulate wealth.
If you could benefit from a financial coach that can help you find balance and ease some of the anxiety in your financial life, we should talk! Click here to schedule a 30-minute (virtual) conversation today!
We can discuss your unique situation so that you can learn more about Waller Financial and determine if we’re a good match.
