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Understanding Online investing, mutual funds & Investment Advisors

For those of us who have money to invest there are many choices out there. Making sense of the investment world is difficult. Most people have only a small amount of knowledge about stocks, bonds, mutual funds and the many other types of investment instruments. Unfortunately we often think that we know much more  than we actually do know. This is dangerous and why using an investment advisor may be a better option for you than doing online investing yourself.

Just because you are a successful, doctor, lawyer or engineer does not mean that you are going to be an successful investor. Whatever job you do probably took you some degree of education and then years of on the job experience to be good at your chosen occupation. Whether you are a nurse, a professional athlete or a store manager, it took years for you to become good at your craft. What makes you think that you can just read the Wall Street Journal or listen to some “expert” on the business channel and then step into probably the most competitive industry in the world.

If you want to play in the investing world for heavens sake do not “play” but be serious. It is not a casino. You do not have a fair chance unless you take it seriously. That means either getting the tools and knowledge so that you can make intelligent investment decisions or use an investment advisor who can lay out an investment plan for you.

The 401K and other retirement and investment plans offered by many companies are something that you should certainly consider. The companies that match a part or all of your contributions are an incredible investment opportunity. If at all possible, put the maximum that you are allowed into these plans but at least put in the maximum amount that the company will match. No matter what percentage your company matches, it is “free money”. No other investment can do that for you.

I will share with you some advice that I gave to my youngest daughter when she began work at a major pharmaceutical company a few years ago. She was starting a 401K and her company was matching 100% of her contributions up to a certain percent. I suggested that she allocate the money that she invested to a very safe fixed income fund and the rest (what the company was matching) to growth funds which were more aggressive. Growth mutual funds offer more opportunity for increases in their equity value but have more risk associated with them.

My daughter also wanted to start buying shares of her company’s stock. I suggested that she add an additional percentage of her pay to her 401K for that purpose. Now after three years, she has a significant amount of money in her account which is fairly well diversified. Since she has now been promoted to a management position, she receives company stock bonuses. This has enabled her to cut back on the amount of company stock that she had been buying herself and increase her 401K contributions allocated to growth funds. This has proven to be a safe yet effective strategy which will continue to give her financial security well into the future.

Each person must develop or have a financial advisor develop a financial plan that makes sense for them. It needs to have some element of safety while allowing for potential growth. If you are going to the “investing casino” be prepared with knowledge and a good strategy. Do not “take a knife to a gunfight”.