April is an important month for your personal finances, and not just because of the tax filing deadline. It’s a time that has been recognized for 14 years as Financial Literacy Month. Don’t let it pass without putting your best financial foot forward. In this two-part series, I’ll cover some tried and true habits that I believe can transform an average investor into a successful investor.
There’s a Month for That
While it is interesting to note the many national designations — April’s also soft pretzel month — Financial Literacy Month is a good time to highlight smart financial habits that can have a lasting impact.
After spending more than a decade in financial services, I have both a professional and personal mission to help people achieve financial independence. This one means a lot to me.
Financial Knowledge Still Reigns
Many financial problems are consequences of bad habits, mostly resulting from a lack of knowledge. Some of the statistics about the financial health in the United States are frankly a bit frightening.
- 59% of Americans do not have enough cash to handle a $500 emergency.1
- 57% do not have a written financial plan.2
- 60% of American workers are very or somewhat confident they will have enough for a comfortable retirement.3
- 85% report feeling financial anxiety today — with 28% reporting they worry every day.4
- The average stock mutual fund investor achieves only about 50% of returns achieved by the market.5
The good news is that regardless of your financial state today, starting good habits can help you live on the positive side of these stats. I’ll discuss a few here and we’ll pick up the rest in part two.
An Emergency Fund Helps Curb Other Bad Habits
No matter how you slice your budget or commit to investing, an emergency can derail your goals like nothing else. The smart habit is to set aside money for the unexpected in an emergency account — roughly three to six months of living expenses. That way, you won’t have to use credit or dip into your investments — which could mean potential tax implications for both non-retirement and retirement accounts. Your retirement account should not be your “break glass” option, so start an emergency fund with small contributions and increase them as you can.
An Investment Plan Positions You to Achieve
You have investing goals in mind — a new house, a college education, and of course, retirement. That’s a good start, but I’m talking about an actual plan — a roadmap that will help you determine what kinds of investments you need and lets you track your progress.
Below are three essentials of a good investing plan:
1. Define your goal
Name it, date it and estimate how much money you will need. Be realistic and use tools such as investment calculators to help get it right.
2. Determine your investing profile
This can be a bit more complicated, but you need to know how you feel about risk before you can choose investments that fit you and your time frame. All investments have risks, but deciding how much you are willing to take will help you make better decisions. One of our Investment Consultants or our online Investment Planner can help you do this.
3. Commit to time-tested strategies
Many investors are carried away by economic headlines and fears. With today’s market uncertainty, it’s easy to understand why. These strategies can help you get on the right path, no matter what the headlines say
- Diversify your investments. Spread your money across several different investment types — such as stocks, bonds and money markets — that react differently when markets change. This helps manage risk because when one investment performs badly, you have others that can be performing well. Although it can’t protect you from loss, diversification can make a difference in reaching your goals.
- Choose an asset allocation mix that fits you. While diversification is the overall strategy, your ideal asset allocation—how much of each type of investment — should be based on the profile I mentioned earlier and how much time you have to save. The right amount of risk should be enough to keep your investments growing, but not too much to keep you up at night.
- Stick to your plan. Once you have all the pieces in place — goals outlined, a mix of investments in the right portions that fit your profile and goals — commit to your plan and stay with it.
In part two, I’ll discuss more smart investing habits, including ways to stay on track, when to review your plan and when to make changes.
In the meantime, take advantage of the experience and expertise of our Investment Consultants. Contact us to get help developing a plan or confirm one you already have. Our team is here to help.
- Vasel, Kathryn, 6 in 10 Americans don’t have $500 in savings, CNN Money, January 2017
- Majority of Americans Are Saving, But Most Lack a Financial Plan, Advisor Magazine, April 2016
- The 2017 Retirement Confidence Survey, Employee Benefit Research Institute (EBRI), March 2017
- Planning and Progress Study, 2016. Northwestern Mutual.
- Is misbehavior hurting your investment plan? Miami Herald, March 2017
Diversification does not assure a profit nor does it protect against loss of principal.
This information is for educational purposes only and is not intended as investment advice.