A Wealth of Possibilities

With so many resources now available – from social media to podcasts and even artificial intelligence – you might say new investors have a wealth of financial information at their fingertips. While accessibility is a good thing, finding credible sources that have your best interest at heart can be tricky.

“I think the key word is ‘trust,’” says Tanya Wilson, client advisor at Arvest Wealth Management. “Getting information from a trusted source, whether that’s from a financial advisor or a podcast, that should be your top priority.”

Wilson explains that a financial advisor should be a fiduciary. 

“What that means is someone that puts your best interest above his or her own interest,” she says. “There are plenty of things that can be learned from podcasts or classes or online sources, but keep in mind that that’s broad, general advice, and working with an advisor will help you tailor a plan that’s specific for your needs rather than just a one-size-fits-all approach that’s presented online or in a class or a podcast.”

John Symcox, senior vice president and chief innovation officer at First Fidelity Bank, says new investors can learn the basics of financial language from websites like Investopedia – but warns not to get all of your info from one place. 

“The most important tip is to diversify your resources, look in many different places and pay attention to common themes and conflicting opinions,” Symcox says. “Stay off Reddit or social media when you are just beginning because there is so
much uncited information.” 

Symcox suggests identifying a few financial professionals to connect with – and meeting with them before taking any advice.

Wilson adds that finding a financial advisor, in person or online, should not cost you any money.

“It should never cost anything for an initial meeting with an advisor,” she says. “Upfront, if they offer a session or a meeting for a fee, that should be a red flag.”

Starting with a strong financial foundation, no matter how large or small your current assets are, is crucial, Wilson says.

“That foundation includes things such as an emergency savings plan, manageable debt and adequate insurance,” she says.

She recommends her clients have three to six months of living expenses in a savings account that is outside of the market, in the event that someone can’t work or has an unexpected expense. 

“Like maybe they need new tires or they need a new hot water heater,” she says. “Having that account assures that they’re not going to have to take funds from a funded retirement account or another account that may have taxes or penalties due if they take a withdrawal.”

A debt review is important because it can look for opportunities to refinance debt at lower rates. Having adequate insurance, like life or disability insurance, is important, too, because those events can quickly derail your plan if you have an unexpected death or if a disability keeps you from working. 

“Most of those coverage types are available through an employer and they’re very affordable through a group policy,” she says. “If you don’t have that, then you can seek those out outside of your employer. That just helps keep your financial plan on track.”

A clear budget is vital to understanding where your money goes, Symcox says. 

“Saving and investing is about getting your money to work, so contributions are king,” he says. “Understand your emotional state with money. Investing will come with gains and losses, so the main question is what your risk appetite is.”

Keep in mind, he says, that success is subjective. 

“Make sure you are clear on what success means to you,” he says. “Using the S.M.A.R.T. goals method to assess success is a great idea. Specific, measurable, achievable, relevant and time-bound investment goal setting helps to set realistic expectations.”

Investment professionals are conflicted in the area of risk, Symcox says. 

“Different investments carry different risk exposures,” he says. “That is why diversification is the best way to manage risk overall. Thinking about industries, asset class, geography and other indicators that can affect a company’s performance.”

He says the riskiest investments are often ones that people make trying to chase returns. 

“Typically, younger investors have time on their side, so it is better to think about contribution as the main objective,” he says. “As you age, preservation and limiting losses becomes more important.”

The degree of risk that’s necessary for everyone to reach their goals is unique to each investor, Wilson says. 

“So while I may think of myself as risk-inverse or conservative, which I typically am, will taking a conservative approach that feels good to me help me reach my retirement goals? It may not,” she says. “But I have to take on some risk. I have to add risk to my portfolio so that I can reach my goals.” 

Typically, investments that offer the highest risk also offer the highest reward.

“Let me use a college savings account as an example,” Wilson says. “Parents start those when they have a newborn or a very young child. And so when they do that, they have 18 years to invest the funds for growth. So they can afford to take on more risk when the child is young, because if there’s a market downturn during that time, they have time to recover it before needing the funds for college.”

The closer the child gets to age 18, the parents may want to shift the account to something that’s less risky to preserve the capital so that funds are available for college expenses when needed.

Start now. That’s Symcox’s advice to new investors. 

“Start budgeting, start saving and start learning,” he says. “Use qualified accounts first if possible – 401K, 403B, IRAs and others.” 

He suggests looking for ways to embed saving into your lifestyle, either by investing a potion of each paycheck, setting up a round-up or per-transaction saving, like $.25 per debit card transaction, or another method. 

“Investing comes with ups and downs,” he says. “Be sure you are paying attention but not emotionally reacting. When the market goes down, then buy more shares. The worst mistake for beginners is they are scared at times and that makes them buy high and sell low.” 

He recommends to buy and keep buying using a concept called “dollar-cost-averaging.” 

“This flattens out the cost per share as the values fluctuate,” he says. “Learn how to hedge or mitigate the different risks with investment positions. There are many strategies to do this.”

Wilson suggests contributing into your 401k or other workplace retirement plan. 

“At the very least, capture the match that may be offered by your employer,” she says. “This is the easiest way to save for retirement because it’s automatically deducted on your paycheck.”

Beyond that, Wilson says to always understand where and how your money is invested. 

“Review your account statements quarterly,” she says. “Most likely, you’ll get a quarterly statement. And if you have retirement plans from previous employers, consider consolidating those to make it easier to track them.” 

In short, plan ahead and steady the course.

“We plan for volatility because we know it’s going to happen,” Wilson says. “So getting on a good path, having a good savings rate, taking that disciplined approach – that’s what’s going to make you a successful investor.”

Bonds have low risk, stable returns and a variety of options, from government to corporate to municipal bonds.

“It’s company debt packaged and sold as bond shares,” Symcox says. “A way for a company or municipality to raise money with a promise to repay.” Bonds can be less risky than stocks.

“They’re typically suitable for clients that are seeking interest income,” Wilson says.

Stocks represent ownership in a business with the potential in sharing in that business’s profits.

“Equity ownership in the company receives dividend distributions from profit, or the purpose is for the company to grow and increase the value per share,” Symcox says. But there’s risk involved.

“They’re typically riskier than bonds and they’re more suitable for clients seeking long-term growth,” Wilson says. “And the key to that is long-term.”

Mutual funds are bundled stocks and bonds managed by a fund manager with a specific objective, Symcox says. He adds that it’s a good diversification strategy, but that investors should learn about share classes and expense ratios before entering into these.

“They’re not traded on an open exchange,” Wilson says. “They’re purchased directly from a mutual fund company and they’re suitable for clients that are seeking the benefit of diversification. If you’ve ever had a 401K, you’ve most likely owned a mutual fund.” 

Real estate
property investments can be packaged or individually invested, Symcox explains. He recommends investors understand the underlying properties, as they can come with unexpected expenses. Wilson agrees.

“A rental property can have hurdles to overcome because it will require a large down payment,” she says. “So this is suitable for clients that have time to service tenants and have the funds available for out-of-pocket expenses, like the down payment or maintenance taxes and insurance on the property.” 

Index funds
track a market index, like the S&P 500, Dow or Nasdaq 100. 

“They are seldom exact to the indexes but are a great base for a broad diversified position,” Symcox says.

Wilson adds that index funds are passive investments.

“Those are appropriate for clients that are seeking movement that aligns with that index such as the S&P,” she says. “It’s not something that’s actively traded. When I say passive, it’s more of a buy and hold.”

ETF or exchange-traded funds are similar to mutual funds but are generally lower cost because they are not actively managed like mutual funds are, Symcox says. 

“These are good for diversification and self-directed investment management,” he says.

Wilson agrees.

“A lot of times people confuse exchange traded funds with mutual funds,” she says. “An exchange traded fund is a collection of stocks that are sold together as one product or share, but they’re traded throughout the day on an exchange. They often have lower fees than a mutual fund.”