That’s right, investing doesn’t need to be that complicated. I don’t care how convoluted and confusing your financial advisor makes it sound, it truly doesn’t have to be that way. Like anything, though, you can get as deep down into the weeds as you want, but when it comes to a good investment strategy, you really just need to know the basics to create a good plan.
While you may not want to manage your investments yourself simply because of interest or time (feel free to call me), just know that if someone put a gun to your head, you could do it. I’m by no means trying to downplay the importance a financial planner plays when it comes to investment management, but there’s so much more in your personal financial life than just investments – which they should be helping you with.
As I try to do regularly with this blog, I lay out the uncomplicated plan of going at it yourself when it comes to being your own investment manager. Once again, probably not the best marketing or business development strategy in the world, since this is part of what NextGen Wealth does for its clients, but I know there are a lot of people out there that think it’s way harder than it has to be. With that said, let’s jump right into it.
As I layout in How to become your Own Financial Planner, the first part of investing is to know what you’re investing for. Your goals might include retirement, quitting your job and starting your own gig, a second home, college for you kids, etc. Basically, whatever requires a lump sum of money to accomplish something.
Once you have your goals separated, it’s now time to find the right investments for those goals. I like to call this your bucketing strategy. Each goal should be its own bucket and thus have its own investment strategy.
Now that you have your goals lined out with specific time frames for each, it’s now a matter of determining the right mix of investments for each goal. As I’ve mentioned in a number of my blogs, the shorter the time frame for the goal, the less risk you want to take with your investments. Here’s a good guideline from How I Invest my own Money.
Within 3-5 years – Online Savings Account (I recommend Goldman Sachs with a current yield of 1.20%).
Within 5-10 years – Moderate balance of investments. This would include something like a balance of 50% equities and 50% bonds. I’ll go into more detail later.
Anything 10+ years – With any goals that are in this timeframe, it’s really up to your comfort level how you want to invest this money. For me, I’m comfortable taking risks, so I typically will have an allocation of 80-100% equities and 0-20% in bonds depending on my comfort level for the goal.
A lot of times you can find asset allocation already done for you such as the target date funds within your 401k plan. Heck, you can even invest in a target date fund outside of your 401k as well.
However, if you want to go at it yourself and you have no idea what the best allocation is for you, then you can always ask your favorite uncle, Google, “What is the best asset allocation for me?” Granted, there’s going to be all kinds of results that pop up, but you’ll have plenty of directions to go in.
If you’re just looking for me to tell you exactly where you need to go – you’re in luck – because CNN Money has a great asset allocation calculator. It will no doubt get you moving in the right direction to know the best mix for your specific goal and timeframe. Once you know the right allocations, it’s now time to plug in your investments.
Just know that the allocation part is by far the most important. It has been proven that over 90% of a portfolio’s returns come from the allocation of your investments rather than the actual investments themselves.
I’m by no means saying to go out and pick the crappiest mutual funds and just invest in those because it won’t matter, I’m just saying combing through 20,000 of them to find the best isn’t totally necessary. I would recommend you look for low-cost, no transaction fee ETF’s, index funds, and/or actively managed funds to plug into the allocation.
Great companies whose investment options I would recommend include Vanguard, Schwab, and Fidelity. There are plenty of others out there as well, but these are probably the biggest and most well-known.
So now you have your time-based goals along with the correct allocation and investments for each, it’s now time to sit back, relax, and watch the money roll in. Well, not really, but pretty close.
You don’t need to watch it every day. You don’t even need to watch it every month or even once a quarter. If you have a good allocation made up of solid investments, then you truly only need to look at your account maybe once or twice a year.
It’s been proven that the more you look at your investments, the lower your return because it triggers you to make stupid changes when really patience is all you need. So go against every instinct in your body and what all the talking heads are telling you to do and only look at your account once a year…good luck!
And, on that one year anniversary, I want you to rebalance your accounts. If you have no idea what the heck I’m talking about then check out How I Invest my Money to find out what rebalancing is and how to do it. It’s pretty straightforward and is an absolute must when it comes to investing.
Believe it or not, but everything I’ve just listed above is the easy part when it comes to investing. Now we get to, what I believe to be, the hardest part; sticking to your plan, blocking out the noise, and not doing anything stupid.
People are their own worst enemy when it comes to investing. They always want to be tinkering with things and moving things around. 99% of the time when stuff is hitting the fan and the noise is louder than ever, the best thing to do simply nothing – or even better yet, not look at it at all.
Regardless of how bad you want to move things around and fidget with your investments, DON’T! I don’t care what your intuition is telling you or what some “guru” is telling you on the television, don’t do it.
The only time you should make changes to your investments within your goal buckets is when you rebalance or you’re getting closer to achieving those goals in which you might want to take some risk off the table. Other than that or some extraordinary world event that has never happened before, there really isn’t any reason.
As you’ve heard me say a million times, your goals are the only thing that should dictate how you invest. Not your neighbor, not the media, and definitely not your gut. You created these goals when you were thinking rationally so don’t do something to mess it up when you’re thinking irrationally. Okay, I’ll step back off my soapbox.
So there you have it, why investing doesn’t need to be that complicated. By far the easiest steps are the first four with the last one being the most difficult. If you want to invest for yourself, you can do it and it doesn’t need to be rocket science. Follow these steps and your older self will be grateful!
NextGen Wealth, LLC is a registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities product, service, or investment strategy. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, or attorney before implementing any strategy or recommendation discussed herein.
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