I spend a lot of time talking to people about their finances. Lately, I have noticed a surprising trend: Many people believe they are not allowed to be an investor. Maybe this is shocking to me because I have owned securities of some kind (Securities are stocks, bonds, mutual funds, ETFs, etc. Basically, most investments) since I was born. My parents opened UTMA accounts for all their children as soon as they had our social security numbers. We grew up with it being normal to have an investment account (at the time, we called it our college fund). Sure, my dad, being an investment advisor and financial counselor, played a huge role in these accounts being available to us; however, I never realized so many people think it is something they are not welcome to do. I want to clarify that – YOU are ALLOWED to INVEST. In fact, you probably already do.
Do you have a retirement plan at work? Do you have a ROTH or traditional IRA account with investments in it? Chances are pretty good you can answer yes to one of these questions. Guess what, that makes you an investor already! Due mainly to technological advancements, investing has been made not only mainstream but more accessible to everyone. You no longer need to be wealthy to invest. Your retirement plan at work is invested in something, unless you have completely opted out and have it sitting in cash. Maybe you are in a target-date fund, took a risk assessment and picked mutual funds as it recommended, or you took the initiative to research and pick which funds you wanted to be in. Regardless, this makes you an investor, which is GREAT news! Why you may ask: Because one of the best ways to increase your wealth and keep up with inflation is to allow your money to work for you and make you more money.
As an investor, you own a portion of the businesses within your portfolio. As those companies increase in value, your investments increase. As they decrease, your investments decrease. This means you need to be smart about your investment choices. There are many different ways to pick investments and many different arguments regarding which ones are the best. Without getting into the weeds, my two pieces of advice are to diversify and do not try to time the market. I will dig into this advice deeper in a future article. Right now, we are talking about being allowed to invest, not how to invest.
Why do people think they are not allowed to invest? In my experience, it has been because they either do not think they have enough money or because their parents did not do it. As I mentioned before, technology has made investing for everyone. Not only are most retirement plans tax-incentivized investment accounts, but everyday investing is readily available. Most financial institutions have options for opening self-directed investment accounts. Many financial advisors will help and encourage people to open investment accounts once they have checked a few other savings boxes (emergency fund, paid off bad debt, etc.).
People do shy away from topics they are unfamiliar or uncomfortable with, which often is wise. Without proper education, investing can be scary. Sure, we have all heard stories of people making millions on the stock market, but we have also heard stories of people losing millions. It is good to be prudent with something like investing, but not doing it simply because your parents did not do it seems a bit unwise. Instead, I encourage you to educate yourself.
While you can lose millions if you make the wrong investments, typically, the market trends upward. Yes, we have downturns and recessions, but historically the market has always come back stronger after them. When I say don’t time the market, this is what I am referring to. Do not try to predict where the top or bottom is. It is a risky game, and the truth is no one really knows. Instead, play the long game. In 10 years, the market will always be higher than it is right now, at least it always has been. Again, I cannot predict the future.
With this in mind, it is a good idea to consider investing. That being said, unless you want to do a lot of research and understand all the ins and outs and tax consequences, it probably makes sense to at least start by talking with a professional. Ideally, this is someone who will understand you and your situation and explain what makes the most sense for you. I have another article about picking the right financial professional. Bottom line, make sure it is someone you trust who has your best interests in mind. You may decide to do it on your own after talking with him/her, but the conversation is worth it! In the end, just remember YOU are ALLOWED to be an INVESTOR!
