CULTIVATED INFLUENCE

Alec is back with his third post, this time giving insight on the seemingly overwhelming world of Wall Street and investing. So without further ado…

-SG

Whether you’re middle class or the top 1%, having a thorough understanding of investing is critical to preserving your hard earned $ and growing it for a financially secure future.

Investing: the act of committing $ or capital to an endeavor with the expectation of earning additional income or profit.

It is NOT a get rich quick scheme! It takes time, hard work, and a learning curve.

For starters, investing is NOT gambling. There is a reasonable expectation for profit; still, there are no guarantees. But, the greatest risk is taking no risk at all. If you won’t need the $ over a long time period and all of your debt is paid off, you will technically be losing $ by leaving it in the bank due to inflation (prices going up and the value of a $ being worth less in the future than it is today).

There are 3 major types of investment “vehicles” to consider when investing: Stocks, Mutual Funds, and Bonds (in order of risk/reward potential). What you invest in ultimately depends on your risk tolerance, time horizon, and goals. Most of us 20 somethings who are financially stable (no debt, emergency $ saved) can bear the risks stocks present because we can handle the ups and downs in order to achieve greater returns in the long run. So once you decide to let your $ work for you consider a systematic process

Steps to Investing

1) Evaluation – Before you invest, it is important to consider your monthly income and expenses. Rule of Thumb: have NO DEBT and at least 3-6 months of living expenses saved.

2) Develop a plan – calculate how much risk you’re willing to take and establish your buy and sell horizon. Preparation is the key to success, so spend some time researching your investments before pulling the trigger.

3) Find an online brokerage/advisor/broker etc. – The easiest way to get started is set up an account with an online brokerage i.e. Scottrade, ETRADE, TD Ameritrade etc. Simply set up an account, deposit your $, and begin investing from there. Online support and “how to” info is readily available if more assistance is needed.

Mistakes to Avoid as Rookie Investors

1) Chasing the Herd – Don’t chase after that high flying stock, you’re likely to be late to the party.

2) Don’t be Greedy – Spread out your bets and diversify your risks. Putting all of your $ in that stock that you just know is going to double could burn you in the long run. Own a variety of stocks or bonds. Or play it safe and invest in a mutual fund which is already likely to be well-diversified.

3) Don’t Try to Time the Market – You are likely to miss out on market rallies that could grow your $ in the long run. General rule: stay invested.

It’s important to remember that investing is a long term commitment. If you don’t trust yourself, seek out an advisor preferably one with CFA or CFP certification, they are professionals and can give the best advice. If you diversify, follow a prudent investment plan, and adjust your strategy over time, the sky is the limit!

Be on the lookout for more business and finance knowledge at cultivatedinfluence.net, if you like what you see or want to talk the stock market, add me on Facebook, follow me on Twitter (@AlecFetterer), or connect with me via LinkedIn.

-Money Never Sleeps

Disclaimer: No reader should act in reliance on anything discussed in this blog without prior consultation with a licensed professional who is qualified to evaluate the reader’s individual facts and circumstances and offer an informed professional opinion with respect thereto. If any reader takes action or makes decisions based solely on the information on this blog without prior consultation with a qualified, licensed professional, the reader does so at his or her own risk and agrees that the authors shall have no liability resulting from such unilateral action or decisions by the reader.