The other day I got an email from a well-educated young woman, who wanted to do some investing in stocks and bonds. She had credit card debt, was living at home with her parents, and her immediate goal was to buy a house so she could move out. She had no savings and didn’t know what a money market account was, yet insisted that she kept thinking she should start investing right away. There is an old saying, “Fools and their money are soon parted.”
The stock market is a volatile and risky thing and even the experts don’t often get it right. I’m not a financial advisor so I always recommend that you meet with a fee-only, Certified Financial Planner to create your own personal financial plan so that you get unbiased, objective advice. Yes, do this even if you are in debt. In the above case, this client had no business even thinking about investing until she had: (a) paid off her credit card debts; (b) saved enough for one year’s living expenses (a cash reserve); and (c) saved enough for the down payment on her home. I recommended she read a few books on buying a new home first to start her financial education before even thinking about investing in the stock market. The library is often a great place to find books to educate yourself on most financial topics. The Rich Dad, Poor Dad series by Robert Kiyosaki is a good place to start as is Suze Orman’s book, The 9 Steps to Financial Freedom.
One goal for all coaching clients is to achieve financial independence and, if you’ve been doing the assignments in this program to date, you should be well on that path. However, if you haven’t met with a Certified Financial Planner, now would be a good time to do so. Every year or so you should review your plan with your planner to make sure you are on track and make any necessary adjustments that can arise from life and economic changes. You originally might have planned to have two kids, but now you have three and need to factor in the additional costs for education, etc. You were about to retire, but then the stock market tanked. Things happen and we need to regularly readjust.
That being said, I recently read about a strategy of “set and forget” investing. You set up your accounts, based on your financial plan and goals and then automatically have the money debited directly from your checking account every month. The automatic savings is the key as it is effectively using the strategy of “dollar cost averaging” — a more effective strategy than trying to time the market. You also apply one of the most important techniques of investing — regular investing over time leads to financial independence. But even in “set and forget” strategies, the experts recommend regularly reviewing your portfolio 1-2 times a year as a minimum.
Homework:
1. Play around with the excellent, eye-opening, free Ultimate Retirement Planning Calculator at https://financialmentor.com/calculator/best-retirement-calculator.
2. Make an appointment with a fee-only Certified Financial Planner to create your own financial plan.
3. Set up automatic investing in accordance with your plan.
10 Minute Option:
Spend 10 minutes playing around with the free Ultimate Retirement Planning Calculator at https://financialmentor.com/calculator/best-retirement-calculator. It can be a real eye-opener. A hint: the average historic rate of inflation is 3.5%.
