The fundamentals
Cardinal rules; building-blocks, do’s-and’don’ts:
You may know them under different names but they all refer to the same foundational structures that underline all our social and economic systems.
And the investment world is no different.
Every investor cuts their teeth learning the basic concepts of investing; how to build and manage a portfolio and mitigate risks. But while these may be the first lessons you learn, forgetting (or ignoring) them down the line may end up being the hardest lessons you learn. As basic as these concepts are, they provide a framework for you to plan and build your financial future in confidence.
Whether you are investing for your retirement, school or to build a diversified asset portfolio, here are five investment fundamentals you should always keep in mind.
5 Investment Fundamentals You Should Always Be Following
Invest in Tax-sheltered Savings Plans
If you are investing in a long-term savings plan, especially if you are saving for college or retirement, you will want to be taking advantage of tax-sheltered savings plans.
Whether you are investing in higher education for yourself or a loved one, a 529 savings account is one of the best resources you have available. You can learn more about 529 college-savings plans here.
Likewise, if you are starting your nest egg, a tax-sheltered or deferred retirement savings plan is a great way to get your financial future on the right track. A 401(k) is the most commonly-known type of retirement savings plan. Offered through most employers, a 401(k) allows you to set aside pre-tax funds into designated, long-term savings accounts. In most cases, your employer will match a percentage of your contributions.
But traditional 401(k)’s aren’t the only retirement savings plan available. There are alternative retirement savings options that, depending on your circumstances, may work better for your plan.
Avoid Excessive Debt Build-up
Debt plays an interesting role in our economy. You need to first build debt to in order to acquire credit and you need credit for… just about everything. However, excessive debt can become unmanageable very quickly and seriously derail your financial plan.
Unfortunately, millions of Americans feel the burden of debt. Especially if you attended a college or university without the benefit of a tax-sheltered savings plan to offset those costs, financial debt can feel like heavy baggage.
Making regular debt payments can go a long way in ensuring that your financial plan stays on track.
Be Wary of High Risk/High-Yield Investments
We have said it many times – risks are a natural part of investing. There is no way around it; if you invest in any asset or security, there are going to be associated risks. However, it is how you respond to, and mitigate, those risks that determines the value of an investment.
Chasing high yielding assets without heeding the warning signs can send you down a dangerous path.
Don’t fall victim to the promise of high-yielding investment. Be aware of of the risks and remember: if it seems too good to be true, it probably is.
Don’t Just Plan for the Future, Plan for the Unexpected
Saving for a future goal like retirement or higher education is great, but how are you set for the immediate future? If an unexpected issue arose requiring emergency funds, would you have a financial cushion?
A common threshold for for adequate, on-hand funds for the average person should be around $2000. If some unforeseen situation (major vehicle service, home repair, medical emergency, etc.) happened tomorrow, you should have enough in liquid assets to meet that financial need.
Unfortunately, a recent survey reported that only 34% of Americans could meet this need.
Don’t Be Afraid of Your Credit Score
For some of us, our credit score is like the monster under the bed; you are afraid to look at it, but it gets scarier and more threatening the more you dwell on the idea of it.
While your credit score is important, there is no need to be afraid of it. In fact, you are in control of your credit score. While it may seem like some esoteric document that dictates your life, that is not the case. Your credit score and credit report should only serve as an accurate representation of your credit history and standing. Do not feel intimidated or discouraged from checking your credit score. You have every right to make sure it accurately reflects your credit standing.
You can even get your free credit report here or by calling (877) 322-8228.
Additional Resources for Investors
Keeping these investment fundamentals in mind while you continue to plan for your financial future is massively important, but they are not the only things you need to keep in mind.
These basic tenets simply serve as a frame of context for how you should be thinking about your financial planning. You should be considering them when making savings and investment decisions, but not relying solely on them.
As with anything, becoming a smart investor takes time, and you are going to experience the occasional set-back. That is OKAY. Sometimes it takes mistakes to learn how to do things right and sometimes – as any seasoned investor will tell you – the investment market introduces things beyond our control.
These investment fundamentals, and other educational resources, can help you learn how to roll with those punches. They can provide you with the tools and experience needed to meet and overcome financial set-backs.
In the event that your financial set-back is due to investment fraud or broker misconduct, you do not have to face that alone either. There are resources available to you.
If you have suffered an investment-loss do to fraud or broker misconduct, contact our team. Our dedicated staff can help you navigate the complexities of investment fraud and help you develop the right course of action and even help you explore loss-recovery options.