Investing Money
The way to achieve financial security now and in later life is to learn how to save and invest over a long period of time. Know the difference between saving versus investing. Know your tolerance for risk. Educate yourself about the opportunities and challenges that managing your money requires. You too can achieve your short term and long term goals with attention to planning and proper advice.
- Do I need a financial planner?
- How do I select a financial advisor?
- What is Dollar-Cost-Averaging?
- What does diversification mean to me?
- How can I learn more about investing money?
Frequently Asked Questions:
1. Do I need a financial planner?
ANS: Financial planners design strategies to help you meet your financial goals which necessitates the collection of personal financial information: cash flow, budget, net worth, savings, investments, taxes, insurance, retirement and estate arrangements. Having an updated, long-term financial plan can help you choose among investment alternatives, but not everyone who seeks investment advice needs to see a financial planner. Interview candidates, attend no or low cost seminars, check credentials, ask about the type of advice, information or services they offer and the costs involved. As with any purchase, be sure you know what you're paying and what you're getting. Financial advisers provide guidance, but you ultimately make the decisions. It's your money.
Be prepared to pay for the investment advice you receive. Some adviser's work for a fee only, some work on commission and others combine commissions and fees. You want to feel confident that the investment adviser, if his or her income depends on sales, is not offering advice slanted toward the products or services sold by the firm he or she represents - when such advice is not in your best interest. To do this you will want to develop some basic knowledge in personal finance and investment. Then you can better decide whether the financial advice given is the best choice for you. Your local library is a great source for books and periodicals. Enroll in an investment course such as Investing For Your Future- A Cooperative Extension System Basic Investing Home Study Course.
Top of page2. How do I select a financial advisor?
ANS: You'll want to identify competent advisers with the education or certification and experience to provide the services you seek. Advice comes from registered investment advisers, registered representatives or stockbrokers, representatives from financial institutions (banks, credit unions, and savings and loan associations), financial planners, insurance agents, and other professionals such as attorneys and accountants. One adviser may wear several hats.
Registered Investment Advisers (RIA's) are registered with their state and the Securities and Exchange Commission- an independent agency of the U.S. Government. To sell investments they must also be registered representatives licensed through the National Association of Securities Dealers (NASD)- a self-regulatory organization whose operations are overseen by the SEC.
Check telephone directories or scan local newspapers to see what financial services are available in your area. Talk to friends, relatives, professional groups you are involved with, and others whose advice you trust. Consider the wisdom of using a team of advisers whose talents and resources can address your changing financial needs over time.
The following professional designations signify study in specific financial services areas and adherence to a code of ethics established by the self-regulatory membership organization-not by state or federal regulatory agencies:
New Hampshire citizens can learn more about state securities laws and regulations by contacting the Bureau of Securities Regulation. Insurance agents and insurance companies must be licensed by the state in which they do business.. Contact the NH Insurance Dept. for more information on Consumer Services. Uncertified accountants (PA's) are not licensed or regulated, but CPA's must become certified and licensed to practice by the NH Board of Accountancy . For more information on licensed and regulated industries in New Hampshire, consult the New Hampshire Dept. of Justice.
Top of page3. What is dollar cost averaging?
ANS: In general, if you want higher returns, you will have to be willing to accept greater risk. This typically means investing in vehicles that fluctuate in value. Dollar cost averaging is investing a specific dollar amount on a regular basis over an extended period of time. The opposite of dollar cost averaging is investing a lump sum at a single point in time. Because of the nature of growth-oriented investments, it is never clear if the price you're paying for your investment today is high or low. With dollar cost averaging, you will automatically buy more shares when the price is low and fewer shares when the price is high. As a result, you tend to acquire most of the shares at a below-average cost per share. This technique can help soften the impact of fluctuations in the investment market. Learn more about this and other investment basics by enrolling in the Investing For Your Future home study course.
Top of page4. What is diversification?
ANS: Diversification is a technique for managing risk. As a rule, it means "don't put all of your eggs in one basket". As applied to money, it means that not all of your funds are placed in any one type of investment. If done properly, diversification can reduce about 70% of the total risk of investing. Three basic ways to diversify are:
- by choosing securities from a variety of asset classes, e.g. a mix
of stock, bonds, cash and real estate.
- by choosing a variety of securities or funds within one asset class,
e.g. stocks from large, medium, small, and international companies
in different industries.
- by choosing a variety of maturity dates for fixed-income (bond) investments.
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5. How can I learn more about investing money?
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