What is Investing?
Before we get started with Investing 101, let’s take a moment to figure out what ‘investing’ even means. The dictionary defines investing as:
The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.
However, we like to think that investing is simply putting your money to work. No matter your current financial situation, investing can be a great way to take the money you already have and grow it. You can help it grow by investing in stocks, bonds, mutual funds, real estate, etc. – but we’ll get to that later. The point is, you pick a way to invest and put your money to work to potentially earn an additional profit.
There is one important thing you need to know about investing: it is NOT gambling. Gambling is when you put your money at risk in the hope that you’ll make more money. In some instances, investing can be a gamble if used incorrectly. For example, some people may buy stock based on a “hot tip”. This usually never ends well and is an investing mistake we help our clients avoid.
When you invest, you aren’t crossing your fingers hoping you have lady luck on your side. Instead, true investing comes after thorough analysis and a reasonable expectation of profit. Focus on disciplined goal-based investing and don’t get caught up in chasing higher returns, which would result in unnecessary risk exposure.
Disciplined goal-based investing begins with the creation of a financial plan to help determine your financial goals and objectives, time table to accomplish your goals and objectives, personal tolerance to risk, and your required rate of return to accomplish your objectives. This should be well thought out prior to selecting any particular individual investment vehicle or instrument (stock, bond, mutual funds, annuities, C/D’s etc.). Once you have a diversified plan and portfolio, you’ll need to monitor and stick to your plan.
Disciplined goal-based investing isn’t trying to “beat the market” or outperform your neighbors, co-workers, friends, or family member’s portfolios. It’s about understanding what your needs are and taking steps to achieve your objectives without having to take on excessive risk to accomplish your financial goals and objectives. Chasing markets and returns can have catastrophic consequences on your long-term financial goals and objectives. Don’t let day-to-day news events, media hype, fear, or greed drive your investment decisions. Have a plan, monitor your plan, and stick to a Disciplined Goal Based Investment Strategy.
While there are inherent risks when investing, Maier & Associates will work diligently with you to create your personalized Disciplined Goal Based Investment Strategy, assist with the ongoing management and make changes when deemed necessary.
Use our investment return calculator to figure out if you’re meeting your goals!
Strong Wealth Management | Equals Financial Strength for the Future
The first step to successful investing is building a strong financial foundation. You can do that by starting with these basic steps:
- Pay off your debts. It’s a great idea to pay off high-interest rate debt – like credit card debt – before making investments that may have a lower or more uncertain return.
- Take advantage of any retirement plans, such as 401(k)s IRAs, Roth IRAs, etc. By putting money into these accounts, you’ll be able to take full advantage of the fantastic plans available to you! Contact Us
The Wonder of Compounding AKA Compound Interest
One of the most important things you need to know about compound interest is that it is a fantastically successful tool that can be used to generate income. Compounding is the process of generating income on an asset’s reinvested earnings. Simply put, compound interest is when your investment accumulates interest, so that from that moment on, the interest added also accumulates interest
To do this, you’ll need:
- Time: The more time you give your investments, the higher the income potential of your original investment.
- Money: Compound Interest is a great tool to have, and Maier & Associates can help you use this tool and maximize your investing potential.
Know Yourself: Your Investment Objectives, and Investing Personality
One of the most important parts of investing is creating an investment strategy that works for your personal characteristics. Two of the main factors that determine which investment strategy you should pursue are your investment objectives and investing personality.
With investment objectives, it really boils down to factors such as safety of capital, current income, and capital appreciation – all of which depend on a person’s age, stage in life, and personal circumstances. A retired widow, a newlywed couple, and a 30-year old millionaire are all at different stages of life, therefore, they’ll have different investment objectives. Generally, we like to tell our clients that the shorter your time horizon, the more conservative with your money you should be. If you are on the brink of retirement, you’re going to want to safeguard or increase the money you already have. On the other hand, if you’re in your 20s and saving for retirement, you have the ability to be more flexible with your investments.
As for your investing personality, you need to know the following:
- How much volatility you can stand to see in your investments
- Your desire to research investments.
Portfolios and Diversification – Oh My!
A portfolio is a collection of different investment assets that are mixed and matched for the purpose of achieving your investing goals. This could be a combination of real estate, cash, stocks, etc. It’s essentially a place where you can put all the information concerning every investment you have made.
We want to help you put your money to work – schedule an appointment with us today and together we’ll jump start your investing career! Contact Us
Now, Time to Make a Strategy..
Now that we’ve given an overview to Investing, let’s review:
- Investing is about making your money work for you.
- Reinvesting your earnings allows you to take advantage of compound interest.
- Each investor is different, with different objectives and risk tolerance – know what type of investor you are!
- There are different types of investments, each with their own pros and cons
- Diversifying investments in a portfolio can help you reduce risk.
With the knowledge we’ve presented you, hopefully you feel that you have a better understanding of what investing actually is. At Maier & Associates, we can help explain the investing process in better detail, as well as help you make an investing strategy.
We want to help you put your money to work – schedule an appointment with us today and together we’ll jump start your investing career!