New to investing? Here are four steps to getting started
Investing allows you to put your money to work for you, growing your assets over time. And for many people, it plays a significant role in their ability to build enough wealth for major life events such as , , and providing for themselves and their family during .
If you are new to investing, understanding the basic building blocks of developing and implementing a聽strategy can help you get started on a sound financial plan. The four steps below will introduce you to the basics of investing, but I recommend working with a financial advisor who can help you match your investment strategy with your financial goals.
1. Take time to figure out your financial goals
You may want to on a house or for聽. Maybe you need to plan how to care for aging parents or make sure you have enough to maintain your lifestyle through retirement. And if you are like most individuals, your ability to achieve such goals will depend on your ability to save and grow your money.
To begin investing, you need to be able to set money aside for that purpose. Review your resources, budget and savings. You will need to know your spending habits in order to honestly and accurately assess them. Once you have identified how much and where you are spending, you can evaluate whether there are any ways you could cut back, put more money away, or redirect your spending to better align with your financial goals. If you need help figuring out how much to save, where to cut back or , work with a financial advisor.
2. Develop an asset-allocation strategy
Once you are ready, you鈥檒l need to determine . An asset-allocation strategy is a plan for how your investments should be divided among聽cash, stocks and bonds. Your risk tolerance, time frame and goals, as well as other factors, should be considered when determining an appropriate asset allocation.
The more risk you are able to withstand, the more stocks you can hold in your portfolio. If you are risk-averse, you may want to decrease聽your allocation in聽stocks or choose safer investments, such as聽fixed-income ones or those聽that are not closely correlated to movement in the market. But understand that no investment is entirely safe and that all of them聽carry some type of risk. You can consult with a knowledgeable advisor about these risks.
Your time horizon is the amount of time you have before you will need the assets for a certain goal or purpose. The longer the time horizon, the more equity exposure you could have in your portfolio because you would have a longer time to regain losses during market volatility. The shorter your time horizon, the less risk you would want to take on.
Depending on what purpose you want聽your funds for and when, you may need to be more conservative with your investing strategy. An advisor can help you evaluate these considerations and select an appropriate allocation.
3. Identify specific investments that fit into your strategy
Once you have chosen how to split up your assets, you will need to pick the specific stocks and bonds to invest in among hundreds of thousands of potential options. You can do this on your own, but for many people it鈥檚 preferable to have an advisor鈥檚 help.
Going it alone could be time-consuming, and you could potentially make other investing mistakes that could have a negative effect聽on your portfolio. Be sure you have the necessary time and knowledge to evaluate the investments you are considering. This also includes determining criteria for when to .
If you work with an advisor, he or she already will have thoroughly researched these investment choices. But remember, these are your assets, and if you don鈥檛 understand something, ask. Good advisors want you to understand your strategy and feel confident in your investments.
4. Schedule regular check-ins
Life happens and things change 鈥斅燼nd so will your goals. You may be single now, but maybe two years from now you鈥檒l be聽planning to get married. Maybe in five years聽you鈥檒l be聽going through a divorce. As your goals and needs change, you鈥檒l want to review your investments to make sure your strategy is still aligned with your life plan. These check-ins could be for you and your portfolio or with your advisor if you are working with one.
To stay on track with your聽goals, you also should regularly review your financial plan, which includes other important areas such as聽insurance and taxes. Your advisor can help you track your progress and make any necessary changes to your investing strategy or other parts of your financial plan.
By using聽these four simple steps, you can feel more confident about how your investments match up with your goals. Getting these basics down will allow you to focus on other areas of your financial picture, such as making sure you are investing in the most tax-efficient way, analyzing your , or planning the best way to .
, a聽former vice president of investments at Stifel, will be launching her own firm, Castle Wealth Advisors LLC, in April. This article first appeared at .
