How To Start Investing
“I had the most absurd nightmare. I was poor and no one liked me.” - TRADING PLACES
Written by Timothy Harris & Herschel Weingrod, Directed by John Landis
(3-minute read)
In a previous blog post I compared the writers and directors who invest their money to Bigfoot. It’s such a rare sighting. I said I would touch on that mistake in another post and since I’m a man of my word, here we are. There’s an entire section in Barnes & Noble called “Investing” so I’m not going to write something that’s been written a thousand times over. Instead I want to focus on the very beginning; the moments before you actually start to invest. These moments will make all the difference to your investing strategy. Try to answer three questions first.
1) WHAT IS MY GOAL?
Like a character with one line in Act II, every dollar should have an intention. There should be a reason why this dollar is being invested. What is your goal with this money?
Your goal(s) should be specific. Try to avoid the pitfall of a generic reason such as you want your money to grow or the classic “it’s a better interest rate than a savings account.” Here’s a hypothetical scenario: Imagine you have $100k. You also happen to need $100k for a down payment on a house. Since you don’t specify that goal and you just “want to see it grow” you may invest your $100k into something that has wild fluctuations. Let’s say it has a chance to increase 50% but also has a chance to lose 50%. You and your spouse find the perfect place and are ready to cash out that $100k for your down payment. But it’s now worth $50k. Oops. You may have just invested your way out of your dream home. If you had specified that goal then you probably would have invested that $100k into something safer.
The investments you choose should reflect the goals you choose. Where you place your money should be intentional. Just like the waitress halfway through the second Act.
2) WHAT IS MY TIME HORIZON?
The pacing between a 30-minute TV comedy versus a three-hour dramatic feature is obviously different. Constructing the perfect joke whether it’s on set, in the editing room, or on the page is all about timing.
Knowing when you need to access your money will also determine the type of investments you choose. Having one pot of money that you won’t need until you retire in 25 years is dramatically different than the other pot of money you need next year for a down payment. It’s about the timing. Don’t get this confused with trying to time the markets which is not something I recommend. This is all about the timeframe surrounding your withdrawal of your investments.
3) WHAT IS MY RISK TOLERANCE?
We all know the studios are taking a risk when they hire A-List actors. They’re investing a lot of money and they have to tolerate whatever risks, and baggage, those actors bring with them.
How much risk are you willing to tolerate when it comes to your investments? I had to tolerate more than I thought especially those days when Brian Williams opened NBC Nightly News with “The Dow Jones PLUNGED again today.” It tested me. There are many Risk Tolerance Questionnaires you can take online to help. As a CFP® and fiduciary I have to give similar questionnaires to my clients. This at least gives me a foundation to build from when it comes to their investments. If you’re not willing to tolerate wild swings in prices then you may have to re-think where you invest.
These aren’t the only questions to ask yourself or things to consider before investing. But I hope this gives you an idea of where to start.
If you’d like more information about how to start investing you can schedule a Complimentary Meeting HERE.
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