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There are a few things in life where it pays to get professional help instead of attempting to do it yourself, and investing is one of them. Regardless of whether you’re investing for retirement, your child’s education or something else, a good financial professional will find the right mix of investments while helping you avoid costly mistakes.
1. Start Now
It’s never too early to get started with a solid investment plan. The old saying, 'it takes money to make money,' is true—the sooner you start investing, the sooner your money can start earning and growing for you.
2. Understand Common Investment Options
Many people think just of stocks when they consider investing, but a solid investment portfolio has a mix of different types of investments. Each offers a unique combination of risk and return.
Stocks
When you buy stocks, you become part owner in the company that issued the stock. The value of the stock goes up and down according to supply and demand. Since there is such a wide variety, stock investments give you the ability to diversify your portfolio by mixing different types.
Bonds
When you invest in bonds, you are loaning money to a company or government, and they pay you back with interest. The interest rate depends on who issued the bond and on how long you hold it. For example, U.S. Treasury bonds typically pay a lower interest than other options such as corporate bonds; bonds with shorter maturities also typically pay lower interest rates than longer term bonds.
Mutual Funds
Mutual funds allow you to pool your money with other investors to purchase stocks, bonds and other securities; you then share in the gains and losses of the fund with the other investors. There are many kinds of mutual funds; some are general, and others are based on a set of specific investment strategies such as technology, small company stocks, or natural resources.
3. Find the Right Mix
Smart investors never put all their investment eggs in the same basket; they spread their money out across different types of investments. The way in which you mix and match your investments among stocks, bonds and other options is called asset allocation, and holds the key to helping you pursue your goals. For example, people who are young and saving for retirement often put more of their money into stocks, since they have time for their investments to seek growth. As they get closer to retirement, they typically want to take less risk with their money, which often make bonds a more attractive option. Asset allocation is one of the most important decisions you will make to help you reach your financial goals; it pays to have a professional advisor guide you along the way.
4. Get Help from a Professional
A financial advisor can help set an investment strategy that allows you to aim toward your goals. There’s a big difference between a financial advisor and a stock broker; a financial advisor looks at all your investments, not just stocks. They can even help you manage your investments, estate planning, and charitable giving in a tax-advantaged way.
Stock investing includes risks, including fluctuating prices and loss of principal.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
Investing in mutual funds involves risk, including possible loss of principal. Fund value will fluctuate with market conditions and it may not achieve its investment objective.
Asset allocation does not ensure a profit or protect against a loss.
