A Cure for the Financial Hangover
Making some sort of financial resolution is common early in the New Year. Many of us overspent our holiday budget, if we even had a budget, and resolve to spend less and/or save more in the upcoming year.
Good intentions? Yes, however, as many resolutions, they barely last through January.
If this is the year to get your financial house in order – it pays to plan. If you were driving from New York to California, you would have a map and a clear understanding of how to reach your destination. The same can be said for managing your finances and investing. If you take a short-sighted, unplanned route to investing, you may never accumulate the money you need to meet your future financial goals or obligations.
Instead, it’s important to develop a strategy to help you work toward your objectives – deciding in advance where you want to go, how much time you have, and the best way to get there.
The first step is to clearly define and understand your goals. Whether you are saving for a child’s education, your own retirement or some other goal, you should have a good idea of how much money you will need and when you are going to need it.
Then you can develop and investment strategy to help meet your goals. An effective strategy might require you to save regularly – by putting money aside systematically; and invest wisely – by finding the right mix of investments to provide enough potential for growth, allowance for inflation and ways to manage risk.
Finding the right investment mix depends largely on the length of time you have before you need the money and your comfort level with risk.
Over relatively short periods of time (generally less than five years), you are more vulnerable to the risk of short-term swings in the stock market and potential loss of principal. If that is the case, a mix containing greater amounts of fixed income investments may be appropriate for you.
From a longer-term perspective, market volatility is usually less of a concern.
Historically, the investment performance of common stocks over the long term has been superior to that of most other types of investments, according to Stocks, Bonds, Bills and Inflation 2002 Yearbook, Large Company Stock Returns represented from 1925-2001. Ibbotson Associates, 2002.
While past performance is no guarantee of future results, it may be useful to you in understanding the risks and potential rewards of common stocks and other investments.
Ultimately, you should select an investment mix that you are comfortable with. If this sounds intimidating or confusing, contact a financial advisor for some professional guidance and assist you in understanding the risks involved as well as potential rewards. They can also help you with monitoring your investments and help you stay on course towards your financial goals. Regardless of your income or net worth, it pays to plan and develop a strategy to help reach your financial goals. Act soon before this resolution fades into next year!
Jeffrey Apps and Tracy Tutag are investment advisor representatives with AXA Advisors LLC (member NASD, SIPC) in Edwards. They can be reached at 926-0601 or email@example.com
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