Some people are intimidated by investing. Hearing terms like “IPO,” “price/earnings ratio” and “margin” may make you think that it’s all too complicated and you’d be better off just stuffing cash under your mattress.
Not so! You don’t need to understand complex jargon to build a sound financial future for yourself. These four simple principles can help guide you toward an investing strategy that puts you on a path toward meeting your goals.
1. Start Now
Long-term compounding is one of the most powerful tools available to investors. With compounding, your savings generate earnings, which are then reinvested to generate their own earnings. It’s never too late to start, but the sooner you begin, the better. The chart below illustrates the power of compounding.
2. Don’t avoid risk; manage it.
A well-balanced portfolio divided among asset classes such as stocks, bonds and cash equivalents may help you manage risk and reduce volatility (ups and downs). Different asset classes tend to react differently to economic and market conditions, so gains in one asset class may help offset losses in another. Your asset allocation, or the mix of asset classes you use, plays a big part in the returns your money earns.
3. Maintain a long-term outlook.
The S&P 500®, a broad measure of the U.S. stock market, was down 37.0% in 2008. But if that drop scared you into selling, you would have missed the 26.5% returns the index posted in 2009*. Returns fluctuate year to year, so you can’t let one bad (or good) year dictate your actions.
4. Avoid or postpone taxes when possible.
Examples of tax-advantaged accounts include employer-sponsored retirement plans such as a 401(k), 403(b) or 457 plan; individual retirement accounts (traditional and Roth); 529 college savings plans; Coverdell education savings accounts; and health savings accounts (HSAs). In some cases, you can defer taxes on your contributions to these accounts as well, helping your account to compound even faster.
we’re here to help
A financial consultant at Hanscom Investment Services can help demystify investing and work with you to put together an investment portfolio that’s appropriate for your goals, timeline and risk tolerance.†
Set up your free, no-obligation consultation by calling 800-656-4328, ext. 2236 or click the button below.
* Source: Standard & Poor’s. Past performance is not a guarantee of future results. Individuals cannot invest directly in an index.
†Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Hanscom Federal Credit Union is not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Hanscom Investment Services, and may also be employees of Hanscom Federal Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, Hanscom Federal Credit Union. Securities and insurance offered through LPL or its affiliates are:
Not Insured by NCUA or Any Other Government Agency / Not Hanscom Federal Credit Union Guaranteed / Not Hanscom Federal Credit Union Deposits or Obligations / May Lose Value
Put Time on Your Side: Invest Now!
These two hypothetical investors with tax-deferred retirement accounts illustrate the advantage of starting to invest early in life.* Once Peter starts investing, he has to invest nearly three times as much per month as Rosa to meet the same goal. And he ends up investing nearly $77,000 more.
| Rosa Rightnow |
Peter Procrastinator |
|
|---|---|---|
| Age when investing begins | 25 | 40 |
| Goal at age 65 | $400,000 | $400,000 |
| Average annual return** | 6% | 6% |
| Amount invested monthly | $201 | $578 |
| Total amount invested | $96,480 | $173,400 |
| Balance at age 65 | $400,290 | $400,551 |
* Taxes will be due upon withdrawal from a tax-deferred retirement account.
** Rate of return is for illustration only and does not represent the return of any specific investment. Your returns will vary.
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