If you have never invested before, the prospect may seem daunting to say the least. With all the fancy-sounding financial terms (stocks, bonds, mutual funds, REITs, options etc.) you might be wondering where to begin. But don’t let that stop you from taking action regarding your financial future. Here is a quick guide to help simplify the idea and hopefully inspire you to get started on your investing journey.
TAKE CONTROL OF YOUR PERSONAL FINANCES
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Where should you start?
The first step should be deciding whether to have your investments managed by someone else (financial advisor) or whether to manage your investments yourself (direct investing). There are certainly pros and cons to each approach and you need to understand them to choose the appropriate one for you.
Financial Advisor Approach
If the thought of managing your investments sounds like Greek and you have no interest (or time) whatsoever in learning it, financial advisors may be the way for you to go. Financial advisors offer a lot of benefits including:
- Wealth of Experience : Seasoned financial advisors live and breathe all kinds of investments daily. They are often very knowledgeable on past, current and probable future economic trends. They have also experienced periods of financial booms as well as financial declines and can therefore readily pinpoint pitfalls that may be less obvious to an amateur investor.
- Time Savings: If your plate is already full of various life commitments (demanding jobs, family obligations etc.) financial advisors can save you valuable time. They would provide you with various financial information and options, saving you having to learn all the often-seeming financial jargon.
Disadvantages associated with hiring financial advisors include:
- Cost: Financial advisors earn a living by charging a fee for the financial services that they provide. Paired with the fees that are included in some of the investment vehicles such as mutual funds, the costs could add up and significantly lower your returns.
- Conflict of interest: Financial advisors may face a conflict of interest whereby they receive some benefit by selling particular products to clients. The financial products being promoted may or may not be suitable for all clients, and therefore some advisors may not always have their client’s best interest in mind at all times.
Direct Investing Approach
If you like learning new things, enjoy money-matters, and would like to have a more hands-on approach with your finances, this approach might be right for you. But first, let’s dive in a little deeper into this approach. Some of the benefits of direct investing include:
- Lower Cost: By managing your investments, you eliminate all the costs associated with financial advisors. These savings, compounded over time will significantly grow your investment portfolio and your ability to reach your financial goals quicker.
- Knowledge and Control: In choosing this approach, you will learn about the available financial options and control where your money is invested. Additionally, financial education and financial access has become much more readily available with various kinds of online brokerage accounts. It is not as complicated as it may seem at first.
Disadvantages associated with Direct Investing include:
- Time Commitment and Research: To successfully manage your investments, you need to spend time educating yourself on financial concepts as well as curve out time to build and manage your portfolio.
- Prone to Emotional Investing: With easy access to online brokerage accounts, comes the ability to panic buy or panic sell whenever there are swings in the financial markets. This could lead to losses or missed opportunities by entering or exiting the markets at the wrong time.
In conclusion, the appropriate approach for you is truly a personal decision. You need to have an honest self-assessment of yourself (financial knowledge, time constraints, etc.) and decide which approach is most suitable for your situation. And once you have that figured out, it is now time to open an investment account. How exciting is that!
“Stay hungry, stay foolish” ~ Steve Jobs