Is it any wonder that one of the most nerve-wracking tasks of financial planning can be understanding how to invest your 401k, IRA or other account? In fact, I think sometimes financial people WANT you to feel nervous, because then you start to think that making investment decisions is too hard for a layperson like you. (In other words, if you’re scared, you’ll need them more!)
Rather, what I have found is that if you can just keep a few things in mind, you’ll avoid the rookie investing mistakes and do just fine on your own.I have said this before: if you can’t explain to another person what investments you have in your account, maybe you shouldn’t be using them. Click To Tweet
Deciding how to invest your money is an area that can become very complicated if you let it. But most of the time, you’re better off making the choice to stay uncomplicated.
Here are 6 things you should consider:
- Don’t stick to the sidelines. Did you know that people who left all of their money invested after the market crashed recovered the original value of their portfolios within two years? And yet I see lots of people still sitting in cash, missing out on great returns. My clients who took a long-term view, took no action, and simply let their investments ride out the volatility are extremely happy they did. On that point…
- Don’t get emotional. I have been alive for three market crashes (not working, alive… sheesh, how old do you think I am?!?). So, I am extremely familiar with the Chicken Little, sky-is-falling rhetoric. Market correction is just basic economics. It will happen again. Just be sure that the money you need now isn’t invested in the stock market and you should be fine.
- Don’t expect double-digit returns. When I perform analyses for clients, I NEVER assume the stock market will return double-digit growth. This is where people get emotional again—just because it WAS returning high growth doesn’t mean it will all of the time. Market return is only part of what will help you reach any given goal; saving consistently is a more important—and controllable—factor. Keep your focus where it counts.
- Don’t overcomplicate investments. I have said this before: if you can’t explain to another person what investments you have in your account, maybe you shouldn’t be using them. Most people do just fine with stock-based mutual funds. If you can’t explain mutual funds, that is a great first step to take in becoming a more knowledgeable investor!
- Be crystal-clear what you’re paying for. This is along the same lines as over-complicating your investments, but one of my pet peeves is seeing people pay loads of wrap fees or commissions and have absolutely no idea that they paid them. Keep in mind that everyone gets compensated when you choose an investment—and everyone SHOULD be compensated if they are helping you—but you need to know how it plays out to ensure you’re getting good value for your money.
- Accept who you are. A long time ago, I had to accept that I would never be like other financial planners. I don’t enjoy a lot of financial news or talk on TV. I can’t spend hours poring over fundamental and technical analysis. But what I found is, my way performs just as well as the people knocking themselves out. So, call it lazy or simple, but I am okay with it. You should be okay with yourself too, because you can be “lazy” and your investments don’t need to suffer.
If you think you might benefit from some help in this area, feel free to book a consult and find out how we can create some context for you with your investments as part of an overall financial plan.