Good Financial Reads: Investing for Beginners

The number-one thing to know about the stock market? It’s unpredictable.

Think of it like a wild bull — and I don’t mean “wildly successful bull market” where everyone is always making money.

I mean, literally a wild bull: a large, powerful entity that has zero interest in your personal concerns, feelings, happiness, or well-being.

Stocks and bonds are very effective tools to grow and manage wealth. You can combine stocks and bonds to help you save for virtually any goal, from growing a nest egg for retirement to saving for college education, to a safety net. In practice, however, many people don’t have the confidence needed to select stock and bond investments. In addition, they may have had bad past experiences, particularly with stocks. The difficulty in selecting portfolios of stocks and bonds, combined with individual biases and past experiences, causes many people to hold suboptimal investments or others to avoid stocks and bonds altogether, to the detriment of their financial plans.

When it comes to investing, everyone wants to find the next Apple, Google, Tesla stock, etc.; however, this is a challenging task. Studies have shown that the best investment strategy is to have a well-balanced and diverse investment portfolio to have long-term investment success. A well-balanced investment portfolio starts with the asset allocation of the portfolio. For those unfamiliar with asset allocation, it is merely implementing an investment strategy comprised of equities (stocks, mutual funds, ETFs, etc.) and fixed income (bonds, bond mutual funds, bond ETFs, etc.). As you begin your journey in selecting an asset allocation that best fits your needs, there are some things that you need to ask yourself first:

As you probably know, virtually any monetary earnings or gains in your life are taxable, and investment earnings are no exception.  We just can’t escape taxes. There is some good news, however. First, if you are getting taxed on your investments, it generally means you have made gains. And, while not as good as gains, investment losses can be used to offset other gains or income, therefore reducing your taxes.