So much of financial planning information seems to be focused on just the investing portion of it. We’re inundated with stock market updates and talk about asset allocation. It is only one portion of a person’s financial plan, but it is an important one. So let’s talk about growing wealth.
The decision to invest is a decision made in confidence and faith (that’s why the market goes down when consumer confidence is lacking). That’s why financial advisors typically offer a risk tolerance questionnaire to clients to determine just how much risk one is comfortable taking. (Note: People are generally more comfortable with risk when the market is going up and less comfortable with risk when the market is going down, so a person’s risk tolerance is not a static measurement by any means but it is a tool to gauge the person’s ability to tolerate fluctuations.)
Investing is the medicine to treat inflation, because plugging along at a lousy 0.30% interest rate on your savings account when inflation is at 1.50% means, in effect, that you’re losing money. Since this loss is not felt directly but more often complained about in the grocery store, it is somehow more tolerable than a loss of 20% in an investment portfolio. Don’t get me wrong, I cringed when I viewed my statements in 2008, too, but I stayed the course because, like it or not, it already happened…selling would only confirm the loss. Plus, staying the course meant that I could buy into certain companies while they were on sale, so to speak. It’s funny, most people love a good sale except when it’s on stocks.
So you must choose to grow or allow your assets to slowly shrivel up like that plum you got at the farmer’s market that you’ve been meaning to eat for the last couple of weeks. Yes, it is difficult but it is crucial in order for you to realize material wealth.
But investing offers another way for you to grow. I have been quoted as saying “A bear market is when the only growth is personal.” Investing will try your patience and shake your confidence. But, when you know it’s what you simply must do, you learn to shake off those doubts and fears and trudge on.
How you invest is highly personal; it depends not only on your age, risk tolerance and time horizon but also what you have to invest, what values you hold to, and what vehicles (such as 401(k) or IRA) are available to you. You may choose to do-it-yourself or hire a professional. If you choose the former, immerse yourself in research about investments via personal finance books, magazines and workshops. If you choose the latter, get referrals and check the adviser’s credentials and licenses. But do something or risk losing money without even realizing it.