WHERE TO START
When considering your financial future is nice to know that there are several options, and ways to invest. The downside to this is trying to wade through the multiple options to find the right path for your current needs. Investing is never a stagnate path, it is always changing as our needs and circumstances change. If you carve up your financial and personal needs in to four main categories it is often easier for you to see what path you should travel down. The four categories will be Liquidity needs, Goals and Objectives, Time Horizon and your Risk Profile.
LIQUIDITY NEEDS.
This is the amount you need on hand for emergencies and other short term goals. The money that you don’t want tied up in long term investments.
GOALS & OBJECTIVES.
What are you trying to accomplish with these investments?
Do you have a specific goal in mind, such as a house, or retirement?
TIME HORIZON.
How long do you want to wait to see our returns?
RISK PROFILE.
What kind of risk are you able to tolerate? What can you put out there and still sleep at night and not burn ulcers through our spine? These four areas are the essentials to finding the types of investments you want to use from the long list of available markets and paths out there today. Answering those four areas makes the path fairly obvious.
BEGIN AT THE END
Every great mystery writer knows the best way to write a good story is to start at the end and work your way backwards. Solving the mystery of good investment plans is very similar. Start with your retirement plans and work back to your day to day needs. Your current liquidity is of course the primary need. If the car needs new brakes, or the front window gets smashed, or the wash machine is chewing instead of cleaning, these problems have to be solved, and money expended, otherwise you are going to have a difficult time maintaining jobs and relations. After you have a comfort zone figured out for your primary liquidity needs however, retirement plans are the best place to jump to, for several reasons. First off, investments setup for retirement are often protected from situations such as bankruptcy and lawsuits. Retirement is a protected area from these, and often will be left alone even when everything else is taken. So it is always a good idea to have investments dedicated for retirement purposes. Second, there are often very good tax advantages associated with retirement investments, such as 401(k) plans, deductible and Roth IRAs, Keoghs, and SEPs.
WHY RETIREMENT PLANS SHOULD BE YOUR PRIORITY!
RETIREMENT PLANS
The investments you make toward most retirement plans are tax deductible. These investments and the interest and gains they accrue are not taxed until the money is withdrawn.
The income earned in most retirement plans is not taxed until you make a withdrawal. Having your financial security funded gives you peace of mind.
OTHER INVESTMENTS
The money you put in other investments is not tax deductible. The income earned on your other investments is normally taxed currently. If you are funding other investments rather than your retirement plans, not only are you giving up tax benefits, you may be putting your own financial future at risk.
HOW MUCH MONEY DO YOU NEED TO START INVESTING?
That’s always the question. Often we are looking at this for the first time because our lives have started to even out, bills are getting paid regularly and maintenance has become a standard task rather than an emergency threat. After all of the smoke has cleared we see there actually is some money left over that could be doing something good for us, instead of just sitting around waiting for the next impulse buy.
There are mutual funds which will let you open an account for as little as $100.00, so you can start very small and begin to build from there. Diversification is a key word for investments, so you could put your money in several different funds. Online stock trading now brings you much closer to investment opportunities as well. It used to be that you needed a broker and to purchase stocks in blocks, investing at least $1000.00. Now you can purchase single shares. However, as we will talk about later, with the fees and taxes involved we need to be careful about purchasing small amounts of stock, simply because the fees involved erode away our investments, rather than building them up.
KEEP THE WORRY DOWN
Planning, research and learning about your investments and your opportunities not only allows you to make good decisions, but takes away the mythic fear and worry surrounding investments and retirement planning. Hope this article has helped educate you and eliminate the confusing nature of your investment solutions, by talking about the choices you have, and what they mean to you.
Our only goal is to get you started on the road to wise investment decisions.
So let’s get started.