It’s not a secret that you should be saving for retirement. Whether you decide to retire or not, having the option to stop working is something I hope you’re interested in pursuing. If not, then you probably can move on, skip this post and save five minutes of your time. At the same time investing is not something you should start on a whim. Like all major projects in your life a little thought about what you’re trying to accomplish will go a long ways in helping you achieve an outcome you’re happy with.
Do I feel confident enough to do it on my own?
I think this is probably the first question you should ask. For some people managing their own money is an easy thing to do. For others, the idea of managing their own money is really scary and the last thing in the world they would want to do.
You could find that you fall squarely into one camp or another. In my experience, you’re more likely to fall somewhere in between. Answering this question will help you decide whether you should have a conversation with an investment professional and what you want to cover if and when you do meet with someone who can help you manage your money.
What’s my time frame?
Time frame is the length of time before you need to use the money you’re saving. The types of investments you choose will depend on how long you have before you need your money.
If it’s going to be twenty years or more before you need your money you’ll want to look for growth. If your time frame is ten years then you’ll want to combine growth with safety. And if your time frame is short (less than three years) you’ll want to make sure the value of your investments doesn’t fall.
For lots of investors the truth is part of their money might be allocated to all three different time frames. If that’s true for you then, you’ll want to know about using different asset allocations for each of the different scenarios mentioned above.
What sort of volatility can I stomach?
Investments go up and down. You probably have heard that stocks are more risky than bonds. And you might have even heard that bonds are more risky than cash. Under some circumstances you would be right.
Here’s the deal. First, you need to understand what volatility means (when investment increase or reduce in value) and how it would affect you. Second, you want to know how you’re going to react if your investments take a southward dive.
I think one of the most valuable services we provide is to help you understand what your tendencies are and then help you manage your fears when the market turns against you. Too often investors lose money when they should be brave and ride out the inevitable market corrections that happen.
Do I want to spend time learning or do I want to find a professional to help?
Investing is not a difficult activity, that is once you’ve spent thousands of hours learning what works and what doesn’t. Otherwise you might fall pray to what I call the CNBC scare.
You see the financial press likes to keep you in a frenzy about your money. And if you actually spend any real time listening you’ll become confused as to what are the right actions for you to take.
If instead you’ve spent thousands of hours learning how investments and the market works it’ll be easy to tune out information that’s either stupid or wrong. If you’re not willing to invest the time learning how markets work, I recommend having a conversation with an investment professional.
You can still decide to manage your own money. At the same time having a conversation with someone who has spent thousands of hours working on investments can be at least an educational experience for you.
How much time am I willing to invest in managing my assets?
I know that I often feel that there just isn’t enough time in the day. I’m happy to hire a professional to do things I’m not very good at or just don’t want to spend time doing. I find that once I get clear about whether I want to spend time doing something that I don’t enjoy (and many people don’t enjoy managing their own investments) then I can make a wise decision about whether it makes sense for me to find help.
I want you to sit down and really think about how much time you want to invest in managing your money. If your answer is not much, then look for outside help.
Do I trust myself to make wise decisions?
This is the big question. If you know that you think things through thoroughly and you have a track record of making wise decisions then managing your own money might be the right thing to do.
If you often find that you wished you had made a different decision after the fact, finding an investment manager who can help with your investment decisions might be the right move. Only you can make that decision.
Oh, one more thing. I you decide to use a professional investment manager make sure you spend time interviewing a few different people. Then, choose the one who you feel does the best job listening to what you want and the one who asks you the best questions. This will help insure that you have an advisor who’s working in your interests.