You’ve worked hard for your money, so it’s important that you have a solid financial plan that will help protect your wealth. Your investment strategy is a large part of that plan—and a smart strategy takes research and thoughtful decision-making.
Unfortunately, there are some misconceptions about investing that can slow you down. To identify the money moves that are right for you, let’s debunk three common investing myths.
“It’s important to both save and invest,” says Christy Isordia, Wealth Management Advisor with U.S. Bancorp Investments. “You should always have an emergency fund, but after a certain amount, you need to make sure you have other accounts in place.”
The truth is that putting money away for the future in both saving and investment accounts is an important part of a financial plan. Isordia recommends that you begin investing either by opening an IRA or by taking advantage of a workplace retirement plan. “You should also continue saving, because you don't want to be in a situation where you invest all your money and then retire, and you have to pull only from investments to live,” she adds.
The type of investment vehicles you choose will depend on your age, risk tolerance and time horizon. For example, younger working people may tolerate higher-risk investments, such as stocks, because they have time to withstand market fluctuations. Someone nearing retirement, however, will want to look for lower-risk investment vehicles, such as bonds.
Isordia tells clients who have access to workplace retirement plans that they’re losing money if they are not taking advantage of their employer’s matching contributions. “I recommend that they at least start contributing the same percentage that their employer is matching, and then build from there,” she says.
The truth is that investment fees will vary depending on how you choose to invest and what you invest in. You should be aware if fees start affecting your rate of return and your financial goals.
Fees typically accrue for the handling of your assets or for the expertise required to manage the portfolio. For example, mutual funds charge expense ratios to cover management costs, while retirement accounts may come with a custodial fee to compensate for satisfying IRS reporting regulations.
Fees can be visible and invisible. A visible fee will be a line item on a statement, such as a commission on a trade. An invisible fee, however, is reflected in the value of the asset and isn’t a standalone figure on a statement. One example of an invisible fee is a “sales load” investors pay to purchase or sell a mutual fund, which is deducted directly from the investment.
While fees are hard to avoid, you can potentially reduce them by investing on your own via self-directed investing or by investing via an automated investing platform, also known as a robo-advisor. These investment strategies usually incur fewer fees. However, paying for a professional’s expertise and time with an actively managed fund has the potential to increase your rate of return over the long run.
While a professional can be a valuable partner for developing your investing strategy and identifying new opportunities, working with one is certainly not required.
That said, if you have a sizeable amount of money to invest, have complex goals or want more guidance than simple investment management, it’s probably best to work with a financial professional who will tailor your plan to your situation.
If you’re new to investing or prefer to invest independently, you could consider an automated investing platform, such as Automated Investor from U.S. Bancorp Investments. These digital tools provide investment services rooted in automation and algorithms.
To get started with one, you’ll typically answer some basic questions, such as, “How much do you want to invest?”, “What are your goals?” and “What level of risk are you comfortable with?” The tool analyzes your answers and builds a customized portfolio with a mix of funds that meet your criteria.
An automated investing platform is handy if you want a more hands-off approach to investing. It may manage your portfolio for you, including regular rebalancing of investments in response to market changes.
Whether you choose a financial professional or automated investing platform, it’s all part of building a better financial future. “We can help people work toward their financial goals, whether it's saving for retirement, buying a house or paying for their kids’ college tuition,” Isordia says.
“It's important to set yourself and the next generation up to be successful financially,” Isordia says. “You have to take care of yourself first to be able to effectively take care of others.”
If you set yourself up for success through saving, investing, estate planning and other smart strategies, you’ll be better placed to help those you love.
Not sure where to start? Take the investing options quiz offered by U.S. Bancorp Investments. Answer a few simple questions. Review your options. And then consider which path forward makes the most sense for you.