Focused on expenses, people will often forget to set aside money for future needs while addressing their present needs, according to Marilyn Burrell, a financial advisor for Edward Jones in Pekin.
“They forget to pay themselves first,” she said. “We all are going to have expenses and things that go along with life, but one of the things that everyone forgets about is really kind of reminding themselves they need to invest in themselves and invest in their future.”
It is never too early or too late to begin investing, Burrell added. She, however, advised young people to start saving money for emergencies as early as possible.
“That needs to start at the age of 18 or as soon as they become employed and start being responsible for some of their money,” she said.
According to Edward Jones Pekin Financial Advisor Drew Eilts, the key to investing for beginners is to identify a goal, such as retirement, estate planning, or a college fund for one’s children. Then, it is important to develop a plan and monitor goals to determine the progress that has been made in meeting them. It is also vital to prepare for the unexpected by ensuring that emergency funds are available.
“That could be something like a sudden death or a sudden disability,” said Eilts. “Those are things you really have to make sure you’re prepared for first. Every person is in a different situation, but certainly, people should at least make sure that if they had a drastic event like a death or disability, they were prepared.”
Once emergency funds have been established, Burrell recommended that inexperienced investors meet with a financial advisor or a trusted, well-versed friend or family member. She also reiterated that the earlier in life a person begins investing, the better prepared he or she will be for a financially secure future.
“When it comes to doing a more long-term plan, every situation is different,” she said. “I’ve had younger people come in with inheritances that need a bigger scope of products. We are inviting younger people in more and more with their parents to help them identify and see what investing means for the long term and making sure that, regardless of age, people are getting some sort of basic understanding of the different sorts of products and the different situations in which you would use them.”
Investing, according to Eilts, begins with setting up a monthly budget. Prospective investors should know how much money they are bringing in and what the money is being spent on.
“As part of your monthly budget, let one of the top lines be ‘invest for my retirement,’ or whatever your goal is,” he added. “Prioritize that on the same page as you’d prioritize your mortgage payments or your car payments or any other expenses you have every month.”
Ultimately, there are two investment options, according to Eilts. One is to own assets such as stocks, businesses or real estate and the other is to loan money through certificates of deposit or savings bonds. In either case, it is prudent to invest in something that is familiar.
“Invest in what you know,” said Eilts. “Many times, people invest in something they heard about at work or something like that. But really, you should understand what you’re doing with your money. You should always be diversified. But certainly, things you know and understand, you’re going to have more interest in, and you’re going to have more knowledge.”
Someone who is starting out and does not want to invest in anything too complex should look at products like mutual funds or Exchange Traded Funds, Eilts added. They have the advantages of being well-diversified and low-maintenance, meaning they do not require constant monitoring. The two most important qualities for successful investing are patience and persistence.
“Invest every month and stick to your plan. (Patience and persistence) really trump intelligence, education and knowing the market and knowing stock trends. Those things don’t translate as much to success.”
Since most people appear to have a retirement goal, new investors often find themselves weighing the merits of an Individual Retirement Account (IRA) against the benefits of a 401K. IRAs are typically self-directed and self-funded, while 401Ks are employer-sponsored plans with funds and investments selected by the employer. Which plan is best depends on the individual investor and the employer, said Eilts.
“Sometimes, employers will match (an employee’s 401K contributions) or sometimes there will be added benefits or a better cost structure for you,” he added. “You should look at the costs associated and the options available both on your own and with an employer to make an informed decision on what’s best for you.”