Why do so many people never obtain the financial independence they desire? Often, it is just because they do not take the first step — getting started. Besides procrastination, other excuses people make include investing is too risky, too complicated, too time consuming, and only for the rich.

Is travel a part of your retirement plan?

The fact is it does not take much time to understand the basics of common investing techniques. One of the biggest risks you face is not educating yourself about which investments may be able to help you pursue your financial goals and how to approach the investing process.

Saving versus investing

Both saving and investing have a place in your finances. However, do not confuse the two. Saving is the process of setting aside money to be used for a financial goal, whether that is done as part of a workplace retirement savings plan, an individual retirement account, a bank savings account, or some other savings vehicle. Investing is the process of deciding what you do with those savings. Some investments are designed to help protect your principal — the initial amount you set aside — but may provide relatively little or no return. Other investments can go up or down in value and may or may not pay interest or dividends. Stocks, bonds, cash alternatives, precious metals, and real estate all represent investments. Mutual funds are a way to purchase such investments and are themselves an investment.

Note: Before investing in a mutual fund, carefully consider its investment objectives, risks, charges, and fees, which can be found in the prospectus available from the fund. Read the prospectus carefully before investing.

Why invest?

You invest for the future, and the future is expensive. For example, because people are living longer, retirement costs are often higher than many people expect. Although investing involves the possibility of loss, including the loss of principal, and there can be no guarantee any investment strategy will be successful, investing is one way to try to prepare for that future.

You have to take responsibility for your own finances, even if you need expert help to do so. Government programs such as Social Security will probably play a less significant role for you than they did for previous generations. Corporations are switching from guaranteed pensions to plans requiring you to make contributions and choose investments. The better you manage your dollars, the more likely it is you will have the money to make the future you want.

Because everyone has different goals and expectations, everyone has different reasons for investing. Matching those reasons with your investments is one aspect of managing your money to provide a comfortable life and financial security for you and your family.

What is the best way to start investing?

  • Get in the habit of saving. Set aside a portion of your income regularly. Automate the process if possible, by automatically depositing money into your investment account before you have a chance to spend it.
  • Invest so your money at least keeps pace with inflation over time.
  • Do not put all your eggs in one basket. Although asset allocation and diversification do not guarantee a profit or ensure against the possibility of loss, having multiple types of investments may help reduce the impact of a loss on any single investment.
  • Focus on long-term potential rather than short-term price fluctuations.
  • Ask questions and become educated before making any investment.
  • Invest with your head, not with your stomach or heart. Avoid the urge to invest based on how you feel about an investment.

Before you start

Organize your finances to help manage your money more efficiently. Remember, investing is just one component of your overall financial plan. Get a clear picture of where you are today.

What is your net worth? Compare your assets with your liabilities. Look at your cash flow. Be clear on where your income is going each month. List your expenses. You can typically identify enough expenses to account for at least 95 percent of your income. If not, go back and look again. You could use those lost dollars for investing. Are you drowning in credit card debt? If so, pay it off as quickly as possible before you start investing. Every dollar you save in interest charges is one more dollar you can invest for your future.

Establish a solid financial base: Make sure you have an adequate emergency fund, sufficient insurance coverage, and a realistic budget. Also, take full advantage of benefits and retirement plans your employer offers.

Understand the impact of time

Take advantage of the power of compounding. Compounding is the earning of interest on interest, or the reinvestment of income. For example, if you invest $1,000 and get a return of 8 percent, you will earn $80. By reinvesting the earnings and assuming the same rate of return, the following year you will earn $86.40 on your $1,080 investment. The following year, $1,166.40 will earn $93.31.

Use the Rule of 72 to judge an investment’s potential. Divide the projected return into 72. The answer is the number of years it will take for the investment to double in value. For example, an investment that earns 8 percent per year will double in 9 years.

Consider whether you need expert help

If you have the time and energy to educate yourself about investing, you may not feel you need assistance. However, for many people — especially those with substantial assets and multiple investment accounts—it may be worth getting expert help to create a financial plan integrating long-term financial goals such as retirement with other short-term needs.

Review your progress

Financial management is an ongoing process. Keeping good records and recalculating your net worth annually will help you for tax purposes and will show you how your investments are doing over time. An Arvest Wealth Management Client Advisor can evaluate your unique circumstances and help develop a plan to align with your goals. Once you take the first step and get started, you will be better able to manage your money to pay for today’s needs and pursue tomorrow’s goals.

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Arvest Wealth Management does not offer tax or legal advice – consult a professional.