Be wise with your money. We have always heard it but have we ever considered it? Does this mean to save it all for a rainy day? Invest it aggressively? Buy that new car? Hide your money underneath the mattress? Part of managing finances is knowing how to choose the right investment strategy. Unfortunately, the best advice most young people get is to just stick it in something and forget about it because you can afford to take some hits while you’re young. This might be one of the worst pieces of advice. So, what should a young professional look for in an investment strategy?
1. Consistency. Always look for consistent growth. Every advisor will tell you they will outperform the market over an extended period of time. One of the problems is that the route taken to “outperform the market” can be very different and often hazardous. In other words, there will be some strategies that are much smoother to the finish than others. You don’t have to sacrifice being aggressive in your early years, but your strategy should have a way to exit the market before it takes a natural downward turn.
2. Protection. A young investor should always ask about an exit strategy. This is a way to exit the market before it completely falls 30 %, 40%, or 50%. Like a good partner, your exit strategy should listen closely. At Archetype, we listen through our three dials investment philosophy– valuation, momentum, and the fundamentals. Our exposure to the market is dependent on those dials. One of the great things about Archetype is that we have a full-time VP of Portfolio Management, Ethan Pollard, who is constantly aware of these dials. Ethan listens well and stays on top of any changes that need to be made to any of our strategies.
3. Costs. Yes, one can make 10% one year, but how much was paid in fees? Upon closer inspection, what looked like a 10% return was really a 6% or 7% return if fees amounted to 3% or 4% of the earnings. This can be avoided. Ask your advisor to stay away from mutual funds or other investments with high fees attached to them. Make sure you know and understand the management fee that your advisor is charging. Investors should be provided with transparency, but they should also understand the value behind the costs associated with investing. For example, if an advisor is charging 1.5%, what all is the investor getting in return for that 1.5%. Is it just managing assets with a phone call or two a year? Does a financial plan come with that 1.5%? Can you have quarterly meetings instead of just year-end meetings? These are questions that every investor should ask in order to understand the value of using a wealth adviser.
4. Simplicity. Investing in the market does not have to be complicated. It can be intimidating to start, but it is similar to driving for the first time. Your instructor rides with you and is there for you. Same with investing. You have instructors who have done due diligence, have your best in mind, and will give you honest answers. Now do not get me wrong, keeping it simple does not mean having a cookie cutter investment strategy. Keeping it simple means that it does not take an extremely complex strategy to accomplish your goals. At Archetype, we “keep it in the fairway.” Our investment philosophy is simple to understand but, more importantly, it has helped our clients reach their goals while having peace about their finances along the way.
5. Wholeness. A good investment strategy can only take you so far. Having a holistic plan is a necessity in today’s world. Ever wondered about how big of an emergency fund you should have, how much you should be contributing to your 401K or IRA, or how quickly you should pay down debt? Or maybe you do not know about taking advantage of your investment losses from a tax standpoint or how compound interest works. These are all questions and topics that make up a holistic plan. From an investment standpoint, having a holistic strategy helps you emotionally withstand the ups and downs of the market, and your career. Your job will be your biggest investment for most of your life, until your assets produce more income than your job does. Diversification is critical, and it takes time and effort to rebalance your portfolio over time. Work with a company and a team that has the resources to adapt to your needs through each stage of life.
Money is an incredible tool but money matters can be complicated. A good strategy combined with a holistic plan will help combat and minimize complications. At Archetype, we want to encourage everyone, whether a young professional or someone getting ready to retire, to work with a team of people that care about the things you care about. Align yourself with people you trust and people who share the same values. As the good book says, “Lazy hands make for poverty, but diligent hands bring wealth” (Proverbs 10:4). Be diligent in your work and in your search for the team that will help you be wise with your money.
Archetype exists to help families thrive across generations by connecting their money with their purpose.
Disclaimer: Our intent in providing this material is purely for informational purposes, as of the date hereof, and may be subject to change without notice. This article does not intend to constitute accounting, legal, tax, or other professional advice. Visitors and readers should not act upon the content or information found here without first seeking appropriate advice from a trusted accountant, financial planner, lawyer or other professional.