I was recently asked what points a first-time investor should consider before investing.  After giving my answer, I thought it would be helpful for my blog viewers to read my response as well.  If you are currently investing, please review the points below to ensure that your portfolio aligns with my recommendations.  I’ve listed them in no particular order:

Invest in no-load mutual funds or exchange traded funds (ETFs) – With all of the high quality no-load mutual funds and ETFs available today, there is no reason why an investor should buy a mutual fund with a load (commission).

Diversify – Diversification is when you spread your money out across different investments instead of “putting all your eggs in one basket.”  While diversification has been a proven long-term investment strategy, it has been questioned after the recent market downturn in 2008 where almost every investment lost money (with the exception of U.S. Treasuries).  However, diversification is still a sound strategy and should still be followed.

Invest a percentage of every paycheck – If you are debt-free, you should be saving a percentage of every paycheck for retirement.  Ideally, you should save 15%, but if you aren’t quite able to do that, just save as much as you can; every little bit adds up.  It is important to invest the money as soon as you are paid so that it doesn’t end up being spent first.  The sooner the money leaves your checking account, the better.  I like to think of my retirement savings as money that I never had to begin with.  You can setup an automatic transfer so that the money leaves your checking account without you having to do anything, which helps investors stay disciplined.

Dollar Cost Average; Don’t try to time the market – Dollar Cost Averaging (DCA) is when you purchase the same dollar amount of an investment periodically, regardless of the investment’s current performance.  For example, if you have $100 excess savings each month, you would buy $100 of a fund every month.  If your investment has been declining, you will be able to buy more shares with your $100; if your investment has been rising, you will be buying fewer shares.

Rebalance – It is important to rebalance once every calendar-quarter to minimize your portfolio’s risk and to improve your returns.  For example, say your investment goal is to have 25% invested in international companies, and 75% invested in U.S. companies.  However, when you look at your April statement, you notice that you currently have 35% invested in international companies and 65% invested in U.S. companies because the international companies outperformed the U.S. companies the last 3 months, which changed the allocation of your portfolio.  You should now rebalance by selling 10% of your international investment and buying 10% more of the U.S. investment, to bring your portfolio back to your desired allocation. 

Stay the course! – The S&P 500 averaged 8.35% a year from 1/1/89-12/31/08; the average investor only earned 1.87% a year during that same time period.  Why such a drastic difference?!  There are many variables, but the main reason is that investors panic when things aren’t going well.  The goal of investing is to buy low and sell high.  Unfortunately, many investors do the exact opposite because of their emotions.  It is important to stay the course both during good and bad times.  When the news sounds bad, it is important to not panic and sell when your investments haven’t performed well.  Likewise, when the news sounds good, it’s important not to get greedy and start buying more.  You may just be buying more at a high price right before the market corrects and brings your investment back down.

Do you need to have your investments evaluated for free by an independent financial planner?  Call me to schedule a free consultation- 913-693-7918 or visit our website for more information, www.chladekwealth.com

John P. Chladek, MBA, CFP® is the President and Founder of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals.  For more information, visit https://www.chladekwealth.com.

All written content on this site is for information purposes only.  Opinions expressed herein are solely those of John P. Chladek, MBA, CFP®, President, Chladek Wealth Management, LLC.  Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness.  All information and ideas should be discussed in detail with your individual advisor prior to implementation.  Investment Advisory services are offered by Chladek Wealth Management, LLC, a registered investment advisory firm in the State of Kansas.  The presence of this web site on the Internet shall in no direct or indirect way be construed or interpreted as a solicitation to sell or offer to sell investment advisory services to any residents of any state other than the State of Kansas or where otherwise legally permitted.