Investing and investment-related questions are usually the first kind of questions I get when I tell people I am a financial planner.
With this being the case, I figured investing was as good of a place as any to start with the upcoming educational series here on my blog.
Over the next month or so, tune in each week as we dive into the core concepts and basic knowledge you may want to consider before starting to invest, or when revisiting your current investments.
As always, consult with your financial professional before making any investment decisions. The content below is purely informational, and some is merely my opinion. This article does not contain any financial recommendations or financial advice.
Investing, why is it so confusing?
First things first, it isn’t your fault investments are so confusing.
Media plays a huge factor in this. With millions of viewer’s eyes up for grabs, investing and the stock market are built up to draw in an audience.
If it were simple, would you want to tune in every day? I don’t think there are many pieces of daily content on how to tie your shoes. Once you know, you don’t need any more information.
Investing is a topic covered daily in news cycles, with common market tracking indexes such as the Dow Jones or S&P 500 being dropped in just about every local newscast.
Over the past decade, it has become readily available information with the phones we carry around in our pockets everywhere we go. It is also much easier to invest, with dozens of apps giving you access to the stock market at a moment’s notice.
Another factor is the variety of talking heads on the financial news outlets, finance blogs, or YouTube channels telling you why you should buy “x,y,z” right now, with someone saying the exact opposite after.
Or instead, we hear how Ivan Investor made millions on his trade. We get all kinds of commentary on why we are in a bubble heading towards a recession, or why the stock market will only continue to go up.
Most of you reading this will remember the financial crisis of 2008-2009, and surely you all remember the headlines in March of 2020.
I will be sure to write an entire blog about the media and the stock market later on in the series, but let’s set the foundation first. Subscribe to the blog to make sure you don’t miss out!
It is also complicated because the investment world doesn’t just confine itself to the stock market in the United States. Markets are present all over the world.
Markets also include Real Estate, Commodities (yes, you can invest in corn, soybeans, and even lumber), and other alternative investments.
Just about anything that you could imagine can be traded in some way, shape, or form.
Cryptocurrencies and NFTs will only add to the complexity, but we will save that for another series on its own. These new technologies and tools are worthy of many words and are an entirely different topic we will likely need to get familiar with over the coming years.
The biggest problem with investing and particularly with information about the stock market is, it is unnecessarily complicated by jargon, speculation, and very specific markets combined with vague recommendations.
Nobody you see talking about investments in any form of content is saying, “Well Ivan Investor, based on your situation, you should do this because of x,y,z”.
Your investments should be centered on you, not what worked for that one guy on the news, or what hot tip someone has. But, we are not getting that level of attention or information from content aimed at serving a wide audience. This blog post is no different in that regard.
This is all incredibly confusing and can be exhausting when trying to get started or stick to your investment plan.
What we experience explains my first line of the blog, the questions I get from those I come in contact with in social situations when they hear I am a financial planner.
Not only do I enjoy getting these questions, I also get a ton of really good questions from people when they approach me in everyday conversation.
Many of these will be answered in the weeks to come.
The 8 Most Common Questions I get about investing:
What are the best stocks right now?
What are good mutual funds I can choose in my 401(k)?
Do my investments have too high of fees?
What is the difference between an ETF and a mutual fund?
Should I do a Roth IRA or a Traditional IRA?
What should I be investing in?
Do you think this is a good investment?
What is bitcoin?
How do I know what will be a good investment 5 years from now?
There are limitless variations of these questions I have heard time and time again. They may seem simple in nature, but it is really hard to simply answer these questions without more context.
Each of those questions will have a different answer depending on who is asking the question.
Start with Why:
Yep. There it is again. For those of you who have been following along since the beginning, you will remember this same statement was my first ever blog post.
So… Why do we invest?
There are a ton of great answers out there when I ask what they hope to accomplish with their investments.
Some of the most common reasons I hear why people want to invest are listed below:
“I want my money to work for me.”
“I want to be able to retire and have enough money to live off of so I can do the things I hope to do.”
“Growing my money would allow me to do the things I want to do sooner.”
“The money needs to grow in order to pay for my child’s education. I can’t save enough each month.”
These are all great reasons to be interested in investing. There are plenty more I simply didn’t have room for.
Wanting to grow money in order to save time or take back your time is a great reason for investing. While it isn’t the main reason we invest, it does tie into why investing is so important.
The main reason you ask? One simple word. Inflation.
Simply put, inflation is the concept of what we will buy today will cost more in the future.
Check out this cool graphic from the investment presentation I use with my clients to show what inflation has done to the price of milk.
What is being illustrated in this graphic is if our money isn’t growing, we are actually losing our purchasing power.
We’ve all seen this throughout our lives. Going out to eat, grocery store bills, and the other common things we need have continued to get more and more expensive.
In most cases, if we don’t want to work forever or run out of money, our money will need to grow. There are always exceptions with windfalls or ongoing income, but in most cases that isn’t something, we can count on.
Keep it simple:
With endless choices in the investment world in the form of stocks, bonds, ETFs, Mutual Funds, (estimates suggest there are between 7,000 and 8,000 mutual funds alone to choose from… yikes!), among other forms of investing, making the right choice can be a daunting task.
Understanding what we need to earn in our investment portfolio isn’t a simple calculation, but with some clarity around how much money you might spend in retirement, how much you can save each month, and how long you want to work, a pretty accurate estimation can be made.
Where many go wrong in their DIY calculations, is not accounting for inflation. The tricky part about inflation too is it varies across the different expenses we have in life. College tuition and healthcare are great examples of two expenses that have grown more quickly in recent years than most other categories.
By accounting for these changes when developing a financial plan, building a portfolio to achieve the necessary return is a much easier task. We don’t need to seek every last bit of possible information, we now know what to look for when constructing a portfolio of investment assets.
While it isn’t something everyone will be comfortable in doing, I want to use the remainder of this series to arm you with the tools you will need to at least make informed decisions.
Managing investments is something you may or may not be comfortable doing, especially in times of economic turmoil.
This article featuring research from Vanguard shows financial advice can add about 3% of return over the course of an investor’s lifetime. Of course, experiences may vary, but this is an interesting observation.
It isn’t because we as financial advisors have access to anything you don’t, but rather because we know what to expect in the markets and what our course of action will be when said events occur.
We know there will be tough economic times in which portions of the investments we choose will not perform the way we want them to. But that isn’t saying they aren’t performing the way we expect them to.
Rather than making wholesale changes (you hear a lot about this in recessions or elections) in our portfolios, we usually make adjustments.
We will touch on this more in coming blogs, too.
What to expect in the next few weeks:
Now that we have the foundation laid out for why we invest, the next few weeks of material are going to cover some of the basics, the low-hanging fruit you can look out for in your investments.
Here is a list of what is coming down the pipeline here on the blog:
- Funds, stocks, and bonds oh my. (Asset classes and why they are important.)
- Don’t lose sleep over investing. (Risks of investing and finding the right amount.)
- Investment rebalancing, made simple. (Why we must rebalance over time.)
- Tax impact on investment choice. (Is saving tax that important?)
- Mad Media. Avoid Investment Distraction. (Trust the plan, not the news.)
I am extremely excited to share the topics I just listed out. I LOVE THIS STUFF!
My favorite part of what I do is being able to break down complicated topics and empower others to better their financial lives.
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I would love to hear your questions that I can answer here in future blog posts.
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I look forward to getting into the depths of investing starting next week.
Until next time,