Personal investing makes the average new investor uncomfortable. I say this because I was a financial planner for 20 years. I found that most people can relax and start investing with more confidence. If, that is, they make money in the process and learn some investment basics… like the difference between stocks and bonds.
You can work with a financial planner or start investing on your own. But when the economy turns sour and you’re losing money, you’ll feel the stress if you don’t know investment basics and have no sound investment strategy. Let’s start our personal investing lesson with investment basics, stocks and bonds.
Stocks are also called equities and they are VARIABLE growth investments. They involve higher risk, but over the long term have historically returned about 10% a year to investors who just buy and hold them. Equities fluctuate significantly in value; hence there is significant market risk here. Bonds on the other hand are FIXED income investments that have the attraction of paying relatively high rates of interest. They are safer and have returned about half as much over the long term. But they too fluctuate in value.
Traditionally speaking, financial planners generally recommend HULT PRIVATE that you invest in both stocks and bonds to get balance in your investment portfolio. That’s the basic investment strategy that’s been recommended to the new investor for years. Often, when stocks are falling bonds are doing just fine and vice versa.
The basic investment strategy: invest 60% in stocks and 40% in bonds to get a moderate balance with overall moderate portfolio risk. That makes personal investing sound pretty simple doesn’t it? And actually it has worked pretty well for years. Just knowing this should boost your confidence and help you start investing with less stress. However, don’t think that this simple strategy will eliminate all stress in this day and age.
This time things could be different because interest rates are at all-time lows with only one way to go in the future… UP. Here’s the problem. Rising interest rates ALWAYS cause the value of bonds to fall. They also hurt stock values as well. With interest rates so low the new investor is tempted to look for higher returns in stocks and bonds.
You’ll need more than just a grasp of investment basics to survive another downturn in the economy. What you really need to get your personal investing ducks in a row is an ongoing plan of action; a sound and complete investment strategy. Then you can start investing with confidence. Check for articles on the subject because investment strategy is that important, especially today.