If you’re over the age of twenty, you’ve probably been told at some point that you should think about investing some of your money. Chances are you’ve had well-meaning relatives, bosses, or coworkers tell you that if you don’t invest you won’t be able to do things like retire or send your kids to college.

When it comes
to investing everyone seems to think they are an expert. All you have to do is
turn around these days and someone is telling you about a hot stock pick or
handing you a brochure for a real estate investment company. What’s worse, so
much of the investing advice you hear is completely contradictory.

With all this noise, it’s easy
to tune out and turn off when you hear the word investing. The fact of the
matter, though, is that most of us simply cannot afford the luxury of not
thinking about how and where to invest our money.

Unless you
have multiple millions in the bank, you are probably going to have to invest
your money somehow if you hope to accomplish things like retirement or higher
education for your children.  .

Can’t I
just keep my money in a savings account?

The short
answer is yes.

Ultimately,
it’s your choice where and how you choose to keep your money. Just like the
decision to keep all your money under the mattress, however, there are certain
risks inherent to the decision not to invest. The biggest risk is that you
simply won’t have enough money to do the things you want to do.

“It’s important to understand
that for many people saving the hundreds of thousands of dollars needed to do
things like retire or fund a college education for their kids just isn’t
feasible. This is where investing comes in.”

When you
invest your money you open yourself up to the possibility of earning additional
income in the form of interest, dividends, and other payouts. The hope is that
this additional income will be sufficient to cover expenses like retirement
which your working income can’t satisfy.

How do I make sure I don’t lose everything?

With the
financial crisis of 2008 not many years behind us most of us are keenly aware
that investment always involves some level of risk. If you were invested back
then maybe you even felt some of the ramifications of that yourself.

The hard
truth is that when it comes to investing risk will always be part of the
picture. It’s also true however that there are things you can do to mitigate
risk. Investing has been around for a while now and we’ve learned a few things
over the years.

Will they ever stop going on and on about diversification?

There’s
a reason financial professionals won’t stop talking about diversification. To
put it bluntly, they won’t stop talking about it because it’s incredibly
important.

When
it comes to investing, diversification is the practice of spreading your money
across many different kinds of investments. So instead of just having stocks in
your investment portfolio, for instance, you might have bonds as well. You
might also choose to invest in a variety of different industries from
technology to construction. That way, if one type of investment or industry
goes downhill you can fall back on others.

Why
is this important? Think of it this way; if you owned a business that sold only
apple pie but suddenly all of the apple trees were hit by a mysterious disease
and didn’t produce a crop you’d be in real trouble. If your business also sold
cherry pie, however, you’d take much less of a bit.

“As simple as diversification
sounds, it’s important to remember that true diversification can be elusive.
Many investors believe their portfolios are diverse when they actually aren’t.
A good financial planner or advisor will be able to offer you a wide variety of
investments, not just a handful of company-approved choices.”

Many
people do not realize just how many different types of investments there are to
choose from. They are led to believe that there are really only a few logical
choices. In reality, the investment world is vast and the financial
professional you trust with your money should respect and work with this fact.

Why do they always say emotion and investing don’t mix?

Ask
any psychologist and they’ll tell you that emotions provide useful information.
While it can be useful to look to your emotions for insight on your own state
of mind, however, it’s not always best to act on your emotions. This is
especially true when it comes to investing. To understand this, think back to
the 2008 market meltdown.

Many
people who saw their assets disappear on paper got scarred and pulled out at
the worst possible time – namely the bottom. Five years from that bottom,
however, the Dow was at record highs. If they had just stayed the course they
would have experienced a period of growth rather than losing everything.

“The bottom line is that if you
want to be successful as an investor, there are times when you are going to
have to act in direct opposition to your emotions.”

Are you saying I should never
pull my money out of the market?

No,
absolutely not. There are times when pulling money out of the market makes
perfect sense. Wait a minute you might be thinking, didn’t you just say that
staying the course in a rocky market was often the best thing to do?

While
staying the course can often provide a better monetary outcome in the long run,
there are many exceptions. Perhaps you are retiring soon and can’t afford to
wait years for your portfolio to recover. Or maybe you are not willing to risk
losing principal and agreed with your financial professional ahead of time that
you would pull out of the market if that began to happen. These are perfectly
good and rational reasons for action.

“There really are times when it’s
entirely appropriate to pull out of the market. The trick is to make that
decision in a non-emotional way and preferably ahead of time.”

When
you start investing, you should have a conversation with your financial planner
in which you hash out what situations would warrant pulling out of some or all
of your investments and exactly how you would work together as a team to do
that while still respecting your investment goals. This helps ensure that you
are only pulling out what your need to and only in situations that you have
rationally decided are right for this action.

Do I really need professional help to do this?

Anybody can
open an investment account and begin investing. The internet has made this
easier than ever. And for some people, this is a viable thing to do. The fact
of the matter is, however, that investing requires quite a bit of work. You
have to ask yourself if you are prepared to learn about all the types of
investments out there, research specific investments to make sure they are the
proper fit for your portfolio and financial goals, monitor your asset
allocation on a regular basis to ensure your investments are diversified, and
make sure that your portfolio is revisited whenever your financial goals or
situation changes.

“Most investors are smart people
who have worked hard for their money and are capable of managing their
investments. They don’t however often have the time or interest to do the
complicated and careful work required to do so. This is why they turn to
financial professionals for help.”

What should I look for when choosing a professional to help me invest my money?

When choosing a financial professional to help you manage your money and make the best possible decisions for you and your family there are many things you should consider.

What’s the difference between a
financial advisor and a certified financial planner?

There
are a lot of different types of financial professionals out there who can help
you with investing, but they don’t all have the same expertise and training.
The two most common titles for financial professionals who help you manage and
invest your money are financial advisor and certified financial planner.

In
broad terms a certified financial planner is someone who has satisfied
additional requirements beyond what a financial advisor has. Professionals who
hold the Certified Financial Planner or CFP designation have:

  • Completed coursework in all areas of financial planning considered necessary by the national CFP Board to help clients with planning for both short and long term financial goals. This coursework includes general financial planning principles, investment planning, retirement saving and income planning, insurance planning, tax planning, and estate planning among other topics.
  • Passed the CFP exam covering the above topics.
  • Completed three years of work as a full-time financial planner or two years of apprenticeship experience with additional requirements.
  • Passed an additional exam covering fitness and ethics standards upheld by those who hold the CFP designation.
  • Passed a background check and completed an ethics declaration.

What does fiduciary mean?

If
you’re at all plugged into the financial news world you’ve likely been hearing
the word fiduciary a lot lately. But what does this word actually mean when it
comes to how a financial professional is expected to act?

The
short answer is that a financial professional who is acting in a fiduciary
capacity is required by law to put your interests as a client ahead of their
own. Some financial professionals are required to act as fiduciaries all of the
time. Others are only required to act as fiduciaries for certain types of
accounts and are subject to other standards the rest of the time.

A good financial professional should
act in your best interest regardless of the laws that regulate their business.
It is important when entering into a new relationship with a financial
professional, however, for you to understand what kind of standards this person
will be expected to follow in regards to your money.

How much does it cost?

There
are many different ways that financial professionals charge for their services
and you should have a good understanding of how your potential advisor for
financial planner bills before you sign on with them.

The
basic thing to remember is that some accounts will be commission accounts,
meaning the advisor is paid a percentage every time you buy or sell an
investment, and other accounts will be fee accounts, meaning your advisor will
be paid a set yearly fee regardless of the activity in your account.

There are benefits and drawbacks
to both fee and commission accounts and you should make sure you have a
conversation about this with your potential financial advisor or financial
planner before you agree to work with someone.

How important is personality?

A
lot of people think that when you’re looking for a professional to help you
with something you should look for someone who has a personality just like
yours. Others feel that you should look for someone who will balance you out.
We feel, however, that the most important thing you should look for when it
comes to personality is someone you feel comfortable communicating with.

Investing can get complicated and
it is sometimes stressful. You need to feel at ease asking your financial
advisor or planner questions and discussing any concerns you have about your
accounts. You should also look for someone who can explain complex concepts in
a way that feels clear to you.

Want to know what we can do for you?

If you are
planning on retiring, funding a college education, or making any other large
purchases in your life chances are you are going to have to consider the
investing your money in some way or another.

Whether
you’re new to the world of investing or a seasoned participant you probably
have questions about how this system works and the best way to navigate it.
Maybe you have something big on the horizon and want to invest to work toward
that goal. Or perhaps you’ve had a portfolio for years but are starting to
wonder if you’re invested the right way.

Why not schedule a phone call with us?

We won’t charge you anything and we don’t require a further commitment from you. We’ll simply ask you some basic questions and help you see the big picture when it comes to your investments. If you want to continue on with us after that and let us help you with your investment needs, fantastic! If not, we’re happy to have helped you in even a small way on the path to investment success.

Ready to Book a Call?


David Wilson, writer at Financial Truths, is also a financial advisor and Certified Financial Planner® at Vector Financial Solutions, Inc. Vector Financial Solutions is located at 139 E. 3rd Ave., Escondido, CA 92025 and by phone at 760-741-3159. He serves clients throughout the U.S. as well as those in Escondido, San Marcos, Rancho Bernardo, Poway, 4s Ranch, Rancho and Santa Fe, California.  

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