Welcome back to Part Seven of our “Back to Basics” series .. we hope you’ve enjoyed the First Six which started with all about “The Emergency Fund” in Part 1 … Part 2 being “Protection Planning” and Part 3 discussing All about Debt Planning or “The Good the Bad and the Ugly of Debt”, Part 4 Retirement Planning … Part Five, Back to Basics Education Planning, Part Six, Estate Planning Made Easy and now, the next to last Review… Investing – Not to Worry we will keep this simple and straight forward…
As a reminder this is a high level Financial Planning Education like overview, starting with the basics of and we will continue into advanced topics in order of Planning Importance.
Investing – It’s Not that Hard – Many Make Paralysis through Analysis
The most important part, save as early and as much as you can and make sure you can make it through the bad times without hitting the eject button.
Investing, specifically investing in the capital markets, can sometimes seem extremely confusing and often times can have paralysis through analysis.
In the spirit of staying with our back to basics theme, we are once again going to lay this out and have what we think very easy to understand format.
Stocks versus Bonds
While we realize there are many different types of investments, for the subject of this series were just going to keep it straight forward and talk about the basic two stocks and bonds.
Stocks a.k.a. Equities
These investments can be made via indexes, individually, mutual funds or various other wrappers .. the most important thing to understand about stocks also known as equity investments, are they for ownership of publicly traded companies.
The second most important thing to know that this asset type is they can be volatile. Major indexes can endure drop by 40 even 50% at times.
Allocations to these instruments should be made with this in mind.
All of the above being said, generally the younger and longer-term … the greater an allocation can be made to these higher volatile but generally greater returning vehicles.
Bonds a.k.a. Fixed Income
Just like stocks, bonds can be wrapped in indexes, mutual funds, individual and there are various different types.
Bonds are the tortoise, whereas stocks are the hare. Generally bonds have a much lower risk profile and therefore are much less volatile, especially with higher quality bonds.
Lower quality bonds, also known as high-yield bonds have characteristics more similar to stocks and should be thought of that way during allocations.
The Most Important Part of Investing – KISS
While many analysis dig so deep into investments that it makes your eyes glaze over, there are really two important parts of investing. KISS – Keep is simple silly
- 1. Save as much as you possibly can, and s early as you can.
- 2. Make sure your allocation above is such that during rough rainy times, a.k.a. slowdown/recession you do not eject and sell. Our human nature of fight or flight will take you out of your investment portfolio at exactly the wrong time if you are over allocated to risky investments.
There you have it…. The keys to investing and investment!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
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