Often, when things are uncertain or perhaps feel like they’re going off the rails, it’s a smart decision to stop and revisit some basics – no matter what the problem is. That includes any financial concerns or dilemmas you may be experiencing. Right now, most retirees like ourselves and even some of our pre-retiree friends are taking a hard look at their economic picture as it relates to the markets, and their investments and retirement savings.
Everyone’s experiencing a bumpy ride right now. We’ve had numerous discussions with our financial advisor, and as usual, he advocates focusing on the fundamentals for an investment strategy that’s right for us. Without his help, we’d surely be even more stressed out during these turbulent times, complicated by high (and rising) inflation. The vast array of investment choices available to us, from stocks, bonds, exchange-traded funds, to closed-end funds or even converting investments to cash, make it difficult to decide where to put our money.
If you haven’t got an advisor, making financial decisions can become quite daunting. Asking friends or family members for recommendations or “stock tips” is pretty risky, and not everyone is willing to do the homework necessary to help them make educated decisions about how to invest. Platitudes like “buy low and sell high” aren’t very helpful, either. Enlist some help from your credit union advisor if you’re feeling the pressure: our partners at Coastal Community Credit Union, Coastal Community Private Wealth Group and Interior Savings are here to help.
An Investment Strategy That’s Focused on the Basics
A successful, long-term investment plan typically focuses on tried-and-true, time-tested strategies. What follows is meant to provide you with some basic guidelines and advice to consider when contemplating your investments and money management. Please speak with an advisor for personalized advice! Naturally, we can’t offer that in a blog post.
1. Define What Your Goals Are
To begin with, you need to define what it is you want to accomplish financially both in the short and long term. Think about why you’re investing. It could be for your retirement, or to fund education for your kids. Maybe you want to buy a home. In the short term it could be simply to afford a new car or a dream vacation. For each item, you’ll need to figure out how much money you’ll need and the time frame to get you there.
2. Invest Early & Often
Even if you can only afford to put aside a small amount every month, the sooner you start, the more time your investments will have to grow. Compound interest on your investments needs as much time as possible to effectively grow your money. The older you are when you start saving means you’ll need to invest a greater amount over a shorter timeline. Someone who starts investing in their 20s will have a greater advantage over someone who starts in their 40s.
3. Risks Versus the Rewards
Investments that come with a higher risk quotient can potentially – though not always – yield higher rewards. However, the amount of risk in your portfolio should correspond to the time horizon for the investment. To give you an example, if you’re investing for retirement 30 years in the future, your portfolio can probably tolerate greater risk because it has more time to ride out any market fluctuations or downturns. Not so if retirement is just a few years away. Be honest with yourself when you look at your personal risk tolerance level – ask yourself if you truly feel comfortable with your financial decision(s) and if you think you can handle a loss in the value of your investments if there is a market downturn. As you get older and nearer retirement or are actually in retirement, your risk tolerance may change drastically due to a shorter recovery timeline if the markets tank.
4. Saving Made Easy
Pay yourself first. That’s right. Set up an automatic deposit on your payday, or the first of the month or whatever day you like so that money is deposited into your investment or savings account(s) before you have a chance to spend it. This strategy is a relatively painless way to save as you never actually have the money in your hand. Pre-authorized deposits can be set up through your financial institution.
As a retiree, the same strategy can work with pre-authorized deposits of your pension(s) into your RRSP, TFSA or into other investment accounts you may have. You might wish to earmark funds to be automatically deposited into an accessible, high interest savings account each month, too – just for emergencies.
We’ve all heard the old adage, “Don’t put all your eggs in one basket.” Try to spread your investments across various asset classes (stocks, bonds, etc.) as well as industries. Holding a variety of stock options is protection against having only one product which could take a nosedive, leaving you in financial straits. The same holds true if you only invest in one industry, for example energy or technology. Diversification helps to balance individual investment risks across an entire portfolio, reducing your overall vulnerability. Again, seek expert advice here!
6. Make a Plan & Stick With It
Markets will fluctuate so having a well-thought-out investment plan that is designed to ride out those ups and downs is important if you want to secure your financial future. A financial advisor can help you create a plan that suits your investment style, goals and timeline.
Consider Expert Advice
These six points are really just basic points of reference to help those who may be first-time investors or need some guidance when it comes to saving and planning for their future. Or for those who wish to grow their money or retain what they have. For some people, the basics may not seem all that exciting and may not suit their idea of investing and making money. In the end it really does all come down to personal investment style and tolerance for risk. Not all investors are the same.
Our credit union partners are available to lend a hand – please give one a call if you haven’t already got a financial advisor working for you.