The following, written by L. Lee Acker, a financial professional from the Bethesda (Md.) Fleet & Family Support Center, is part of a series of financial blogs aimed at helping you achieve a healthier financial status. In this post, Lee tries to direct you away from playing the lottery and point you towards earning money with better odds of a return on your money … investing. Today’s topic will be post one, of three entries, about investing fundamentals.
Let me state up front that I can’t promise you wealth and riches by tomorrow… so please don’t expect any hot stock tips in here. Ha!
When you are considering placing your hard-earned money into investments know your options and know them well.
Here are your fundamental investment options:
The world of investments is a huge place. Making your money grow can be an unfortunately difficult task. Here is what you are dealing with when choosing investments; a little perspective on a very small piece of a much bigger pie:
– The New York Stock Exchange has 2,308 listed stocks
– The primary bond market in the US is roughly $32 trillion dollars big
– There are 7,581 mutual fund choices, and;
– 923 exchange-traded fund choices
I have not begun to count the numerous other investment vehicles that have been created, like options, warrants, preferred stocks, futures and derivatives. Nor, have I expanded the number of regional and specialist markets that exist in our country (let alone the international markets). All of these stats to emphasize when you open your eyes to your investment options you will drown in a sea of choices unless you have a game plan for it.
I made my first stock investment when I was 25 years old. I was very excited. I watched it’s price movement daily. I cheered the upticks and sweated the downticks. I was glued to the news and pondered how I would make a lot of money with my choice. These were the days before that famous baby in the high chair… but I had the same mentality nonetheless. How did I decide on the stock I chose? Purely because it sounded exciting. No other analysis. It seemed to be the place to be.
At the end of my mental roller coaster ride, I sold out. I had only held 200 shares for 2 months (Yep, two months!). I netted $200 after commissions, a small profit. That was a lot of mental energy for a small amount of money in an even shorter amount of time. It was unnecessary what I had done to myself. It was stressful and draining.
Why am I telling you this? Because I have seen it played out over and over again by numerous people I have advised and counseled in my years as a stockbroker, financial advisor and financial counselor. And I’m 100% certain I will continue to see this kind of behavior in the future. A short term focus with no clear objective in a very big game. I thought I would become rich by making an “educated gamble.” I see that same gleam in the eyes of those who come to me. It’s very contagious in today’s information-rich world.
If you are serious about wading into the water, here are some simple steps I suggest as guidelines to help you wade through picking suitable investments… a life raft or safety vest, if you will:
1. Name the specific goal for your money (i.e. retirement, house fund etc.)
2. Note the specific date when you will need to spend the money
3. Quantify how much money you will actually need by your specified date
4. Determine how often and how much you can save/invest toward this goal on a periodic basis (i.e. weekly, monthly, yearly etc.)
5. Figure out how much risk you are willing to expose yourself to get to your goal
6. If you have trouble getting through the first five above, consider getting help from a financial coach who can help you learn and assess the right way for you to invest. It’s like going to the doctor to get a proper physical before starting marathon training.
You’re probably wondering why I gave you this kind of guidance. Why not specific tips on how to choose actual investments? Trust me. If you can clearly define these parameters, then you can narrow down the field to investment choices that will make sense for you. Plus you will stay away from the mistake I made, and many others make; getting googly-eyed about making money without a clear purpose or plan (Take a minute to stop and think about what I just said. Seriously)
The investing world is complicated. If you do the steps above you can place yourself above your peers and utilize the marketplace as a tool to help you achieve your long-term goals. Then, maybe, that stuff that the kid in the high chair is going on about will be a reality and not just a funny commercial.
Okay, that will get you started. In my next entry, I’ll be more specific about how to choose investments by focusing on the investment options of the Thrift Savings Plan (TSP).
Meanwhile, got comments from your own investing experience? Care to share them in the comments section?