Q. I would like to invest some of my savings but have no idea how to start. Many of my friends lost money in 2008 and I am a nervous investor. What advice can you give me as I consider investing?
I can understand someone being a nervous investor! You are certainly not alone.
First, remember that virtually every investor lost money in 2008. It was hard NOT to do so when the market corrected so sharply. This is the perfect example of why it’s so important to understand your risk tolerance. Personally, I didn’t sell anything in the 2007-2009 market drop (other than to re-balance my investments, of course). I kept buying shares, even as they dropped in value, and was rewarded handsomely when the market recovered starting in March 2009. While the losses were tough to take at the time, I could handle them because my asset allocation matched my risk tolerance. I personally know folks who sold their investments in 2008 and missed the massive run up in value over the last several years. Why did they sell? Because their investments were riskier than their tolerance!
Secondly, you mentioned investing your savings. My guess is that you’re using the terms interchangeably, but to be clear to other readers, investments and savings are different. Savings are for short-term liquidity, like an emergency fund (2), and should be held in FDIC-insured accounts. Investments are for long-term growth (and potential income in retirement), and should be managed with the future in mind. Any funds needed within five to ten years should be saved, not invested!
So how do I recommend investing for long-term growth? As mentioned above, understand first your risk tolerance then decide how to allocate your investments. Review my investing fundamentals, too. They will give you many great points to keep in mind as you begin to invest. I’m available, too, if you need some personalized financial coaching. Having a plan is a great strategy for a nervous investor to feel better about moving forward.
Even for those of us who have very specific investing strategies, the market volatility we experienced earlier this year can be tough to take. But if you’ve diversified your investments properly, you can ride out the storms and enjoy long-term investing success!
John is a CPA and personal finance coach. Email your questions to firstname.lastname@example.org.
If you need confidential financial coaching for your particular situation, please contact John for a no-cost, no-obligation discussion of your needs.