Investing: What It Means and What You Need to Know
Friday, June 19, 2020, 6:00 PM | Leave Comment
The term “investment” gets thrown around a lot in different circles, such as how education is an investment in your future.
Traditionally, though, we think of investing as a more direct financial tool.
Think about investing with these five thoughts in mind.
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Investing is for the Long Term
Despite what you may see about day traders making millions in stocks overnight, investments are typically designed to build wealth over many years. There are times when a big uptick can quickly fatten your portfolio, but something like the COVID-19 pandemic could pull it down just as hard.
If you’re just starting out in your career, your investments can go into some of the higher-risk instruments because there is plenty of time for their values to recover before you retire. If you’re only looking at a few more years on the job, you should work with your advisor to start moving into more stable choices.
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It’s Not Just About Stocks
The markets get plenty of attention in conversations about investing, but they are not the only option you have. If you have a low tolerance for risk, you don’t have to put your money in stocks. Treasury bills, municipal bonds, precious metals, and others can prove far less volatile, and in certain time spans may even outperform the markets anyway.
If you shudder at the thought of seeing tens of thousands of dollars “disappear”, there are plenty of other choices you can explore that will not create so much exposure. Once again, the safer tools are best for anyone expecting to use the money soon, regardless of how much risk they will tolerate.
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Think of Everything as an Investment
Outside the financial world, the term “investment” means to commit a resource to something with the expectation of a future return. You can invest time in a job in hopes of a promotion, transfer, or other opportunities that may or may not have a monetary benefit attached.
Somewhere between this context and the strict dollars-and-cents meaning of investing is where you can actually enhance your wealth.
If you’re thinking of renovating your house, you get the benefit of having a home that looks better and makes you happy. However, you also have added value that you can capture if you sell the house someday. When you develop this mindset about everything you do, you will develop better-thinking skills and become better at all types of investing.
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Good Information is Essential
It’s not difficult to dial-up an online brokerage and put money into a company, but that’s not the best way to handle it. Too often we think of all stocks moving together, such as in booms and busts. This happens with those big events, but on a day-by-day basis, different stocks will thrive and shrivel depending on many other factors. For example, the advent of digital cameras buried companies like Kodak that stuck doggedly with film for too long. Other companies did well as Kodak faded away.
Work with qualified people to get ideas, but don’t neglect your gut. Research stocks and mutual funds thoroughly on your own before committing to anything. There are too many sources of information out there for you to plead ignorance when something goes wrong, so take advantage of sites like The Basis Point to help you avoid bad choices.
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Consistency is Key
A good portfolio isn’t bought, it’s grown. You should have a good mix of options in your holdings, but every combination takes time to mature. Think about your planning horizon–typically, how long it will be until you retire–and plan your choices based on that.
Once you start investing, don’t quit. Payroll deduction is a great way to beef up your values without really noticing that you don’t have the money available. If you receive the money and then have to move money into the investments every month, it becomes very tempting to spend it on something else instead. If you never have it, you won’t have this problem.
Investment is a complex concept, but with some research, you’ll be able to position yourself to meet your financial goals. Focus on good choices with good information to make the most of your money.
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