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Financial Basics

Investing

Investing can be both risky as well as rewarding. Start when you’re young - when time is on your side.

As a younger investor, you have:

  • More years ahead of you to weather the ups and downs of the market
  • More possibilities for your money to compound
  • Potentially a greater share of your income to invest due to fewer financial obligations
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Things to Consider

When should you start to invest?

You should consider investing once you are all set in the short-term:

  • You’ve paid off your high-interest credit card debt
  • You’re taking advantage of your employer’s 401(k) match
  • You have a safety net of 3-6 months living expenses saved
  • If purchasing a home soon, you have the down payment saved.

 

3 Things to consider before you invest

 

Goals

Understand how long it will take to reach your goals. Use our Goal-Setting Worksheet to articulate your goals and to figure out how much time you have to reach each one.

Funds

Review your budget to determine the amount of funds you have to invest. Consider funds you received as gifts or inheritances.

Risk

Determine how much risk you are willing to take. Your financial advisor can help you understand your risk tolerance.

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4 Ways to Invest

There are 4 main asset classes1 to choose from. An asset class is a group of securities with similar characteristics that behave similarly in the marketplace:

 

Cash and cash equivalents

Examples: Money market funds, treasury bills

  • Generally safe, highly liquid investments
  • Cash held in a portfolio is usually intended for investment opportunities as they arise and to address short-term funding needs.

Fixed-income investments

Example: bonds

  • Bonds are loans to a company, government or governmental agency for a specific time period and interest rate.
  • Maturities range from one day to 30 years
  • Traditionally offer lower risk and returns than stocks

Equities

Example: stocks

  • Provide an investor with an ownership stake in a company
  • Return on your investment will come from any growth in the value of the stock and dividend payments, where applicable.

Alternative Investments

Examples: real estate, commodities, hedge funds

  • Can help diversify your portfolio because they tend to behave differently from stocks and bonds Typically long-term investments
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Your appetite for risk

Diversification is a key to sound investing.2 That's why asset allocation3, or dividing your investments among various asset classes, is an important factor in your portfolio, helping balance the risks and the rewards.

Attributes of the 4 main asset classes

 

Cash

Pros: Safe. Lets you be nimble to invest cash when opportunities arise. Holds value in downturns.

 

Cons: Offers very little return after inflation; too much can drag down portfolio return potential.

Fixed-Income (bonds)

Pros: Less volatile than stocks. Guarantee return of principal plus interest if held until maturity.

 

Cons: Traditionally delivers lower returns than stocks. Inflation can erode the value of the principal over time. Prices decline when interest rates are rising.

Equities (stock)

Pros: Historical growth is higher than bonds or cash. Dividends provide returns, where applicable.

 

Cons: Stock market moves can cause volatile price swings not related to performance of the company that issued the stock.

Alternative Investments

Pros: Exchange traded funds (ETFs) and mutual funds are diversified and liquid. They can mimic the performance of a sector (such as technology stocks), or an index (such as the S&P 500).

 

Cons: Hedge funds, commodities, and real assets such as real estate, precious metals, rare coins, wine, and art may be difficult to value and are generally more illiquid.

Getting started

Professional financial advice is a good place to start. Your financial team will work closely with you to develop and implement an investment strategy to help you pursue your goals.

When investing, there is always the potential to lose money. Before you invest, make sure you understand the possible risks and rewards of the investments you're considering.

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