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Many People Think That Investment Is Risky, But The Fact Is It’s Risky Not To Invest

Many People Think That Investment Is Risky, But The Fact Is It’s Risky Not To Invest

You might think that now is not the right time to invest because you really don’t have a lot of money. However, that’s a common misconception that could jeopardize your financial future.

The best time to invest is when you’re young, because your money will have more time to grow. An early strategy of consistent investment will give you a nest egg later on in life that you can use for major purchases or, better yet, retirement.

Here are some common misconceptions that millennials have about investing.

“The Stock Market Is Too Risky”

You might think that the stock market is just too risky. You were around when the financial markets took a nosedive in 2008 and perhaps even noticed how it affected your own family. You’ve read about the great stock market crash of 1929 and you’re certain that you don’t want to park your money in stocks with an uncertain future.

While there’s no doubt that the stock market crashed decades ago and experienced a bit of a mini-crash in 2008, it’s also proven to be one of the most valuable means of building wealth since its inception. Even if you started investing in stocks in 2005, just a few years before the recession hit, you would still have a return of 72 percent over 10 years. Over the lifespan of its existence – since 1950 – the S&P 500 has enjoyed a return of more than 12,000 percent.

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So while there certainly will be hiccups along the way, the historical trend favors those who invest in stocks.

“OK, I’ll Find the Best Company and Buy Its Stock”

You might be holding back on investing because you want to find a great company with a business model you can fully support.

While there’s certainly nothing wrong with investing in a great company, the last thing you want to do is to park all of your money in that one company. If it goes belly-up, then you could lose your entire investment.

Instead, opt for diversification. Spread your money among various stocks, bonds and mutual funds.

“If you want to manage portfolio volatility” says Tom Biwer, an investment manager at Wells Fargo, “then following that old cliché about not having all your eggs in a single basket is a good idea.”

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“I’ll Just Buy Into Companies That Other People Are Buying”

A go with the flow mindset might work when you’re on a road trip and trying to decide your driving speed. However, that’s not always the best way to invest your money.

If you think you should invest in XYZ Corp. because everybody else thinks it’s great and is investing in it, then you might be buying a stock that is considered overbought. In a nutshell, that means the stock price could come collapsing down at any time. You might end up taking a steep loss.

“My Uncle Gave Me a Great Stock Tip; I’ll Buy Into That Company”

As stock market guru Jim Cramer says: “Tips are for waiters.”

Somebody might be telling you what you think is a hot tip about a company that’s about to be acquired or report stellar earnings. However, if the person giving you this information really knows that and tells you about it, then he or she is committing a crime. It’s called insider trading and it can get you into a lot of trouble with the Securities and Exchange Commission.

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The best advice is to do your own research with publicly available information and purchase stocks accordingly.

“I’m Just Going to Put Cash in a Lockbox and Save That Way”

The problem with stuffing cash in the proverbial mattress is that your money won’t grow. However, what will grow is the cost of products and services that you buy. That’s called inflation.

So if you put cash away in a lockbox, you’re in reality losing money because, thanks to inflation, that money loses its purchasing power over time.

“My Car Is Considered an Asset; It’s An Investment”

While a car purchase may be the biggest purchase you commit to besides your home, the large price tag doesn’t make it an investment. An investment is supposed to make you money. A home is more likely to appreciate over time, while a car depreciates over time. Buying a luxury car for resale value doesn’t make sense because only 1/10 of the top cars for resale value are over the “luxury threshold” of $35,000.

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It’s important to acknowledge that car purchases are not investments. So remember to research all your options carefully to see how well your vehicle model and make resell, because you’ll never be able to recoup your initial cost of buying the car in the first place. It’s much better to buy a cheaper car and put your money towards better investments.

“I’m Living Paycheck to Paycheck; I Don’t Have Money to Invest”

This might seem like a valid excuse, but the reality is that you should opt for some lifestyle changes so you can put some money away into a mutual fund.

As noted above, time is your friend when it comes to investing in the stock market. As Marcia Brixey has pointed out, if you start investing $10 per week at 8 percent beginning at age 30, you’ll have just over $99,000 by age 65. However, if you had started 10 years earlier with that same investment strategy, you would have earned more than $228,000 – a difference of more than $129,000.

Once you learn the facts and become more comfortable with investing, you can watch your money grow. Won’t that be a great feeling?

Featured photo credit: http://photopin.com via flickr.com

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Anum Yoon

Writer & Journalist

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Last Updated on August 20, 2019

How to Set Financial Goals and Actually Meet Them

How to Set Financial Goals and Actually Meet Them

Finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. And that’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

In this article, we will explore ways on how to set financial goals and then actually meet them with ease.

5 Steps to Set Financial Goals

Though setting financial goals might seem to be a daunting task but if one has the will and clarity of thought, it is rather easy. Try using these steps:

1. Be Clear About the Objectives

Any goal (let alone financial) without a clear objective is nothing more than a pipe dream. And this couldn’t be more true for financial matters.

It is often said that savings is nothing but deferred consumption. Therefore if you are saving today, then you should be crystal clear about what it is for. It could be anything like kid’s education, retirement, marriage, that dream vacation, fancy car etc.

Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives, however small they may be, that you foresee in the future and put a value to it.

2. Keep Them Realistic

It’s good to be an optimistic person but being a pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going out of the line will definitely hurt your chances of achieving them.

It’s important that you keep your goals realistic in nature for it will help you stay the course and keep you motivated throughout the journey.

3. Account for Inflation

Ronald Reagan once said – “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman”. And this quote sums up the best what inflation could do your financial goals.

Therefore account for inflation whenever you are putting a monetary value to a financial objective that is far away in the future.

For example, if one of your financial goal is your son’s college education, which is 15 years hence, then inflation would increase the monetary burden by more than 50% if inflation is mere 3%. So always account for inflation.

4. Short Term vs Long Term

Just like every calorie is not the same, the approach towards achieving every financial goal will not be the same. It is important to bifurcate goals in short term and long term.

As a rule of thumb, any financial goal, which is due in next 3 years should be termed as short term goal. Any longer duration goals are to be classified as long term goals. This bifurcation of goals into short term vs long term will help in choosing the right investment instrument to achieve them.

More on this later when we talk about how to achieve financial goals.

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5. To Each to His Own

The journey of setting financial goals is an individualistic affair i.e. your goals are your own goals and are determined by your want to achieve them. A lot of times we get on the bandwagon of goal setting only to realize later on that it was not meant for us.

It is important that your goals are actually your goals and not inspired by someone else. Take a hard look at this step at all the goals you’ve set for after this step, you will be on the way to achieve them.

By now, you would be ready with your financial goals, now it’s time to go all out and achieve them.

11 Ways to Achieve Your Financial Goals

Whenever we talk about chasing any financial goal, it is usually a 2 step process –

  • Ensuring healthy savings
  • Making smart investments

You will need to save enough; and invest those savings wisely so that they grow over a period of time to help you achieve goals. So let’s get down to ensuring healthy savings.

Ensuring Healthy Savings

Self realization is the best form of realisation and unless you decide what your current financial position is, you aren’t heading anywhere.

This is the focal point from where you start your journey of achieving financial goals.

1. Track Expenses

The first and the foremost thing to be done is to track your monthly expenses. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you would be surprised to see how small expenses add up to a sizeable amount.

Also categorize those expenses into different bucket so that you know which bucket is eating the most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pump up your savings rate.

2. Pay Yourself First

Generally, savings come after all the expenses have been taken care of. This is a classical mistake which almost everyone of us do. We pay ourselves last!

Ideally, this should be planned upside down. We should be paying ourselves first and then to the world i.e. we should be taking out the planned saving amount first and then manage all the expenses from the rest.

The best way to actually implement is to put the savings on automatic mode i.e. money flowing automatically into different financial instruments (for example – mutual funds, retirement corpus etc) every month.

Taking the automatic route will make us lose control of our money and hence will compel us to manage in what’s left with us thereby increasing the savings rate.

3. Make a Plan and Vow to Stick with It

Budgeting is the best to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be made.

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Nowadays, several money management apps and wallets can help you do this automatically. It’s easy and who knows, you may just end up doing what people fail to do.

At first, you may not be able to stick to your plans completely but don’t let that become a reason why you stop budgeting entirely.

Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

4. Rise Again Even If You Fall

Let’s be realistic. It’s not like the world will come to an end if you made one mistake. This isn’t called leniency but discipline.

If you fail to meet your budget for a month, don’t give up the entire effort just like that. Instead, start again.

Remember that flexible plans are the most realistic plans. So go forward and try to follow your financial goals as planned but if for some reason, the plan gets out of hand for you, do not give up on it just yet. This has a lot to do with your psychology rather than any material commitment.

All you have to do is to stay on the road and vow to stay on it, no matter how much you fall down.

5. Make Savings a Habit and Not a Goal

In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

Make Savings a habit rather than a goal. While it might seem to be counter intuitive to many but there are some deft ways of doing it. For example:

Always eat out (if at all) during weekdays rather than weekends. Usually weekends are expensive. Make it a habit and you would in turn be saving a great deal.

If you are travelling buff, try to travel during off season. Your outlay will be much less.

If you go out for shopping, always look out for coupons and see where can you get the best deal.

So the key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice which will be harder to sustain over a period of time.

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6. Talk About It

Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission. And it would be rather easy to lose the grip over your discipline.

Therefore in order to stay the course, it is advisable that you keep yourself surrounded with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

7. Maintain a Journal

For some people, writing helps a great deal in making sure that they achieve what they plan.

So if you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

Use this journal to write down all essential points such as your short term, mid term and long term goals, your current sources of income, your regular expenses which you are aware of and any committed expenses which are of recurring nature.

When you have a written commitment on paper, you are going to feel more energised to follow the plan and stick to it. Moreover, it is going to be a lot more easier for you to follow you and track your progress.

At this point, you should be ready with your financial goals and would be doing brilliantly with savings; now it’s time to talk about the big daddy – Investments.

Making Smart Investments

Savings by themselves don’t take anyone too far. However savings when invested wisely can do wonders and we are at that stage where we will talk about making smart investments.

8. Consult a Financial Advisor

Investments doesn’t come naturally to most of us therefore rather than dabbling with it ourselves, it is wise to consult a financial advisor.

Talk to him/her about your financial goals and savings and then seek advice for the best investment instruments to achieve your goals.

9. Choose Your Investment Instrument Wisely

Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about them.

Just like “no one is born a criminal”, no investment instrument is bad or good. It is the application of that instrument that makes all the difference.

Do you remember we talked about bifurcating financial goals in short term and long term?

It is here where that classification will help.

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So as a general rule, for all your short term financial goals, choose an investment instrument that has debt nature for example fixed deposits, debt mutual funds etc. The reason for going for debt instruments is that chances of capital loss is less as compared to equity instruments.

10. Compounding Is the Eighth Wonder

Einstein once remarked about compounding,

Compound Interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.

So make friends with this wonder kid. And sooner you become friends with it, quicker you will reach closer to your financial goals.

Start investing early so that time is on your side to help you bear the fruits of compounding.

11. Measure, Measure, Measure

All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments; taking stock of how our investments are doing.

If there is one single step where everything (so far) can go wrong, it is at this step – Measuring the Progress.

If we don’t measure the progress timely, then we would be shooting in the dark. We wouldn’t know if our saving rate is appropriate or not; whether financial advisor is doing a decent job; whether we are moving closer to our target or not.

Do measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

The Bottom Line

This completes the list of tips for you to set financial goals and actually achieve them with not so great difficulty.

As you can see, all it requires is discipline. But guess that’s the most difficult part!

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Featured photo credit: rawpixel via unsplash.com

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