The Ultimate Investing Guide

Investing helps your money grow. Regardless of if you’re investing in picked-stocks, ETFs, bonds, or any other investment vehicle – it’ll grow a little faster than if your money was just sitting in the bank and dependent on inflation. Inflation slowly erodes the purchasing power of your dollar, making everything from groceries to your car a little more expensive every passing year. 

Meanwhile, if you’ve saved consistently, there comes a point where your monthly contributions don’t make a dent enough of a dent in reaching your financial goals. By this point, it’s all about how you’ll grow your wealth through compounding. For example, if you’re saving $4,000 a month instead of $400.

While an exciting time to get into investing, there’s also ample risk to consider when investing. A thoughtful, long term, and diversified investing strategy is the best way to make your money work for you. 

The trick to investing is to have patience. In the short term the markets will go up and the markets will go down, but in the long run investing usually beats savings hands down. Download our guide to learn how managing your investments thoughtfully can yield higher rewards long term. 

The quick answer is risk and reward. Savings are safe but yield a low return. Investments are risky but have a potential higher return. Therefore, the more time you have the better. So the younger you start, the more time you have to allow your money to grow as an investment and benefit from the increased returns over the long term.

An investment portfolio is the mix of stocks, bonds, cash, commodities, and real estate that you own. It’s up to you to decide which assets will compose your portfolio, considering that each will have different risk and potential return. Stocks, for example, are volatile investments that offer potential long term higher returns and losses than cash and bonds. Cash, however, is much less volatile and thus offers much lower expected returns. 

Risk capacity is a measure of the magnitude of price declines your investments can take while still achieving your goals. Top financial advisors are particularly skilled at helping clients identify their risk capacity by stress testing possible future scenarios for both your income and your investments.

Risk tolerance is your willingness to be okay with the worst-case scenarios. In assessing your risk tolerance, imagine how much angst and stress you can manage when the portfolio value is down. If the stress of losses or volatility (price fluctuation) is too much for you to bear, it might be best to adjust your portfolio to reduce the volatility – even if your ability to take more risk is higher than your risk tolerance.