How do you get started investing?
Photo: Adam Raoof. Source: Animal Photos
Investing can be daunting. Stocks, bonds, real estate, commodities—they all seem to hitting record highs. And there’s all the specialized jargon: cash settlement, maturities, dividends, not to mention taxes. Sometimes it seems like the industry deliberately makes things unclear so you’ll have to go to them for advice. And nothing comes for free, does it? We’ve all read stories of Ponzi schemes and other predatory financial products.
It seems safer to leave your money in the bank, rather than succumb to a hot sales pitch from some financial snake oil salesman. But we also know that the steady drip, drip, drip of 2% inflation means that $1,000 today will only buy $670 worth of goods and services in a couple of decades. So where do we start?
The first place to start is between your two ears. Figure out what you want to use your money for, then decide how to invest it. If you need an emergency fund—usually a couple months’ expenses—the best place for that is probably in the bank. When you use cash for something unexpected—a car or home repair, or transitioning between jobs—you don’t want to have to wait for a check from a mutual fund company. And you don’t want to have to sell something at a bad time.
But if you have longer-term goals, banks don’t pay very much. They never have. Their business is to borrow money—your money—cheap, and lend it out dear. It makes sense to keep some liquid funds there. But not all your savings. For your long-term objectives, you should take some time to educate yourself.
Whenever I visit a foreign country, I try to learn some rudimentary phrases—at least enough to get by. The same holds true with professional services. Each has its own specialized lingo. Whether it’s health care, or construction, or the military, we don’t know what’s going on if we can’t understand the language. So since we have to spend time in the Republic of Finance—if only as tourists—we should learn the language and what some of the main attractions are: landmarks, monuments, prisons, and especially, how to get to the airport. Unless you plan to move there, you want to be able to leave.
Photo: Clara Natoli. Source: Morguefile
Leaning about investing can feel overwhelming, but it doesn’t have to be. Treat it as a game—as a trivia game, or an animal-vegetable-mineral 20-questions game, or monopoly—with real money. Do something that allows you to have some fun while you learn the basics. Because just as war is too important to be left to the generals, finance is too serious to leave to financial professionals.
Douglas R. Tengdin, CFA
Chief Investment Officer