Hi 20-somethings,
Get ready to think a bit and use your imaginations and ponder and plan. This is about your life and it’s exciting. You have a job, you have a checking account and now you have an IRA account. I think you even have a savings account. These are all good things. Money is going into your checking account every pay day. Then you are putting money into your savings account for emergencies, vacations, costs of caring for your stuff, etc. And now you’re putting money into your IRA as well. You are being responsible and taking care of yourself. Good stuff.
Now what? You probably need to think about putting your money to work for you and make some wise investment decisions. And so many things jump into your brain at once: mutual funds, stocks and bonds, CD’s, diversification, risk/reward, blah blah blah, yadda yadda yadda. It’s a lot of stuff and is so overwhelming that avoidance and denial are reasonable ways to deal with the confusion. So let’s keep it really simple and gain a vantage point from which to view the investment choices and then build from there.
We know there are different types of companies out there: large, small, established, new, growing, shrinking and so it follows that the stock market is made up of these same types of companies. Some would be riskier to invest in than others. Yes? This makes total sense! The goal is to get you situated with a portfolio of assets that includes some that are risky(ish) and some that are safe. This will hopefully let your money grow at a decent rate while avoiding large fluctuations in the total dollar amount of your savings.
Now let’s talk about the relative riskiness of assets and why you need to be aware of them. Relative riskiness, hmm, you were saying? All this means is that if you invest your money in a newer and growing company that isn’t making a profit yet versus in a company that is very established and profitable, there’s a chance you can lose a lot or all of your investment. This is the extreme, and there is a spectrum, but you get the idea.
Of course you could toss all of your money into safe assets, but you may be missing out. If the economy is growing, then investing in risky companies can have a pretty appealing upside. And it’s OK to take some risk, especially at your young age. You have plenty of time to ride the incoming market waves and sit through a couple of economic cycles before you retire. But, you need to look at the big picture and use your common sense when you are making decisions.
This stuff is basic and you have all the tools you need to make good choices: just look around you and talk to people. How are things out there? Are your friends finding jobs? Losing jobs? Are new establishments opening around town? Are they closing? How is your family doing? Losing jobs? Stuck in a house they can’t sell? These are the things to notice. When bad things are happening, keep your money in safe places. When things are looking up, let some of your money join the growth party.
What about now? Well, things are starting to look up. It’s not like jobs are falling out of the sky and Congress has become functional, but yes things are looking up. More people are finding jobs, the real estate market is finally out of jail, the Federal Reserve is backing off of keeping rates super low. But the stock market has really shot up recently, so that adds another dimension to our decisions and we will get into that and more in upcoming blogs. Stay tuned and follow me on Twitter @cmchristian17.
ttyl,
Connie
Invest Gen Y 