Investing 101: Make it a Family Affair

Jacquette M. Timmons

The unemployment rate may still be on the high side, but it is declining. On top of that, the economy is improving, and the stock market is rebounding. For some, this concatenation is an invitation to invest and do something they’ve never done before. For others, it’s an opportunity to take a more active role in the management of their money. The Great Recovery is underway!

This makes it the perfect time to revisit the basic principles of investing a.k.a. investing 101.

What follows are steps novice investors need to know, seasoned ones need to be reminded of, and things families can do together to make investing a family affair:

1)      Define in what you are going to invest – When most people say I’m going to invest, the assumption is that they mean the stock market. But, there are other markets, e.g., real estate, commodities, etc. So, be clear about the investment instrument/s you want: high-yield savings, certificate of deposit (CD), mutual funds, exchange-traded funds (ETFs), stocks, bonds, etc.

2)      Know why you are investing – What goal(s) will your investment fund, what’s your timeframe, and are you a short- or long-term investor, or both? This will dictate what you buy, when and why, as well as when you sell and why.

3)      Have a buy & sell policy – This discipline will enable you to take the emotional element off the table, especially when you have to make a tough decision to sell.

4)      Decide how your portfolio should be allocated – What percentage should be invested in cash, bonds, stocks, domestic vs. international, large stocks vs. small, growth vs. value?

5)      Don’t treat your money equally -- Make certain your tax-deferred accounts or portfolio (a.k.a. retirement accounts such as 401(k), 403(b), IRA, Roth-IRA, etc.) compliments your taxable accounts or portfolio. These “pools” of money should NOT have the same holdings in the same proportion.

6)      Decide if you will be a client – Will you hire a financial professional? If so, what type (e.g., broker, independent financial advisor, affiliated advisor, CPA, financial planner, financial coach)? Or, will you be your own client (self-directed)?

7)      Create a re-balancing/evaluation strategy – You want to keep an eye on your investments, but not too much! Review your portfolio each quarter and revise your asset allocation (step #4) as your life circumstances dictate so that you always have a strategy in line with your needs and goals.