The Fundamentals Of Investing – Do You Know Them?

A key component of financial literacy is understanding the basics of investing. Investing doesn’t have to be complicated! You’re trading access to your money now to use later on while giving it time to potentially grow.

There is a universe of investment vehicles that can be used in investing strategy. The important part is knowing which are best for you based on your goals, timeline, and risk tolerance. These vehicles can serve as the basis for a well-diversified portfolio that can help grow your assets.

Understand risk. Risk tolerance is the amount of market risk—such as the volatility or market ups and downs—you can tolerate. As financial professionals, we often use risk tolerance to identify investing styles as aggressive, moderate, or conservative, as well as what are appropriate investment vehicles to reach your goals.

Know your time horizon. Your time horizon is the length of time we have to invest before you need the money. Generally, the more time you have before you need the money, the more risk you can consider (usually by investing in the stock market). That way, you have time to potentially maximize returns and recover from any dips in value along the way while allowing time for growth. On the other hand, if your time horizon is very short it’s important to consider the amount of risk you take. There’s less chance of recovering from a dip in value with a shorter time horizon!

Create a plan and follow it. A financial plan is more than just a budget and a retirement account. The plan should be rigid enough to keep you on track and flexible enough to accommodate unexpected events. Start with the basics by setting up automatic contributions to a retirement account. If your company offers a 401(k) with a match, consider participating if you don’t already. If you’re unsure which is the best fit for your goals, it’s important to get help. It can be costly to go-it-alone: time is the one thing we don’t ever get back.

Investing for the long-term includes more than just picking stocks or bonds. It’s about aligning your retirement goals to your risk tolerance to get a portfolio that makes sense for you. You can get there on your own, but it helps to have someone in your corner! If you’re ready to talk about a financial plan, please schedule some time with our office.