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New to Investing? Here’s Your Checklist

New to Investing? Here’s Your Checklist

| December 06, 2019

When you’re first starting off in the investing world, it can seem like there are countless pathways toward meeting your financial goals, and everyone seems to have a different opinion on which one is best. Between choosing investment vehicles, determining individual risk, setting savings goals and keeping budget in mind, many new investors aren’t even sure where to start.

But have no fear – even the most successful investors had to start somewhere – and no two paths look exactly the same. This checklist can help you find your footing.

Identify Your Investing Goals.
We all have different financial goals – what are yours? Some investors might have their eyes set on a comfortable retirement or a new house. Parents often start investing to help grow a child’s college fund. And, of course, there are plenty who want to get rich.

Whatever the reason is, having an end goal helps answer other critical questions, such as how much you need to invest and what types of investment vehicles make sense.

Understand the Difference Between Investing and Speculation.
Investing is a methodical, long-term way to achieve your goal(s). It involves assets or items acquired with the purpose of appreciating or generating income. Popular investments include stocks, bonds, mutual funds, and retirement accounts. 

Speculation, on the other hand, is a financial transaction accompanied by a large risk of losing all value, but with the expectation of a substantial gain. Assets involved in speculation include options, foreign currencies, startup companies, and cryptocurrencies.

Note the primary difference between the two: risk. While investments come with some risk, investors are unlikely to lose the entire principal investment amount. With speculating, that’s a real possibility.

Know How to Fund Your Investments.
By its most basic definition, investing is using money to make more money. But it all starts with an initial amount. Where can you find the funds to kickstart your investing? You might choose to change up your spending or reorganize savings in order to free up cash. Some people start investing after receiving a large influx of cash, such as an inheritance, severance pay, or even winning the lottery.

Successful investing requires smart saving. If you’re thinking of investing in the future, practice good saving habits. It might start with putting away $200 every paycheck that you can then invest when you’re ready.

Choose Investment Vehicles.
There’s a wide array of investment vehicles. Among these are individual retirement accounts (IRAs) and 401(k)s through your employer. There are also exchange-traded funds, which are investment funds traded on stock exchanges. You may investigate mutual funds, professionally managed investment funds that pool money from many investors. Then, there are stocks and bonds, which are purchased as a security by an individual investor.

Be Honest with Yourself About Uncertainty.
All investments are accompanied by some risk that investors must be comfortable with. Investments vary in terms of risks and returns, depending on how easily an investor can withdraw their money when they need it, how quickly money grows, and how safe their accounts are.

Types of risk include business risk, interest rate risk, liquidity risk, and inflation risk – and investors need to understand their potential to affect their wealth. Note that some savings accounts, insured money market accounts, and CDs are insured by the Federal Deposit Insurance Corporation (FDIC), up to $250,000 per insured bank. 

Reach Out for More Help When You Need It.
When you’re first starting out in the investing world, there are numerous pathways you could take. Deciding which one – and understanding how this affects your individual financial situation – can be tough. Rather than blindly choosing investment vehicles and hoping for the best, sit down with a financial planner to map out a comprehensive plan. They’ll provide insight as to what makes sense for your circumstances, what to expect with taxes, and any risk you might face.

It can be hard to know if the professional you’re working with is right for you. Make sure you can communicate well with them, they have experience working with clients in your financial situation, and they can clearly explain how they work and add value.

Pinnacle Financial Advisors can help you make confident investing choices by considering your current circumstances, your risk tolerance, financial abilities, and future goals. Contact us today for more information.