Keep in mind that how you handle your money today may affect how you live tomorrow. Also note that it’s a common mistake to think that one needs a lot of money in order to invest and/or save for retirement. The most important thing actually is to get started. You can’t reach the finish line without entering the race. This is especially critical for young people who have the potential benefit of time on their side. Starting small is better than doing nothing.Another tip: keep emotion out of your investing. Once you determine your risk tolerance, create a sensible plan and follow it while keeping in mind that it must be re-balanced or revised periodically. Hoping to put something aside at the end of each month rarely works. There are too many demands. Having funds automatically deducted and invested is a great way to start. Such plans can be started for as little as $50 per month. If that does not work, consider an independent financial advisor.
Financial planning may be one of the most important aspects of your life and where you are in that life often determines how you invest. It’s usually easier and more objective when done with a professional as fear and procrastination can cause you to lose sight of your goals. Not sure if you should hire a financial advisor? According to research firm Spectrem Group (www.spectrem.com), 77% of ultra-high-net-worth investors (those with $5 million to $25 million in investable assets) are satisfied with their advisor.
Another top financial priority for someone in their 20’s or 30’s is to get out of serious debt. Then think about your other financial needs and start saving to reach them. A single person with no dependents may consider investing in a fairly aggressive strategy with investment growth as the primary goal.
If your job offers a 401(k) or a Simplified Employee Pension (SEP) plan try to maximize the tax-deferred savings. Many employers encourage contributions by offering a match, which makes these options even better. A younger person has a longer time horizon until retirement and may wish to accept more risk and weather market volatility, so they may choose to invest in equities or equity-based securities with the hope that they will be rewarded for the risk they take on.
For long-term investors it’s important to have a portfolio that is well diversified. Bonds can be a part of this since they may experience better performance when the equity market does not.
In general, the bond market is volatile during times of fluctuating interest rates; bond prices rise as interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Bonds also carry their own unique risks such as calls, credit of the issuer, liquidity, changing interest rates, and general market risks.
Major governments, as well as highly regarded municipalities and corporations, may present a lower chance of default, and ratings agencies like Standard & Poor’s and Moody’s Investors Servaice provide higher ratings that reflect their general creditworthiness. Lower-rated bonds will pay greater interest with more risk. For a younger investor, you may consider maintaining 10% to 30% of your portfolio in bonds. As needs change over time, this number would probably change to preserve assets.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.