Consider These 7 Things Before You Invest

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By Cathleen D. Phelps

Investing and planning for the future can be a daunting task. There are so many factors to consider in creating and managing your portfolio, and you may find it difficult to find a financial professional you trust for unbiased advice.

That’s why Monument Wealth Management, as an independent registered investment advisor, has prepared this list of seven considerations to help prepare you to make investment decisions and facilitate a conversation with a financial advisor.

What’s your goal? There are lots of reasons to sock money away for growth: emergencies, home down payment, education and retirement are only a few examples. Understanding your liquidity needs and investing goals help you decide which investments will provide the funds you need at the right time.

What do your finances look like right now? Do you have three to six months in savings for living expenses? How much debt can you eliminate? Prioritize what you are saving for according to your current financial situation. You want to be able to invest consistently over time, even if the amount is small, but without putting yourself at risk of not having cash when you need it or having to liquidate investments early. Managing your household’s cash flow is key.

When do you need money? Some investments are more easily liquidated than others. There are tax implications whenever you sell an asset. High-risk assets are more appropriate for longer time frames. Plan for your cash needs 12 to 18 months in advance so you will be able to make thoughtful, rather than emotional, decisions for any changes to your investment strategy. Market fluctuations are the primary reason investors make bad decisions. Eliminate this by predetermining your liquidity needs.

How do you feel about risk? Every investment decision has an upside and a downside. How certain and how large does the upside have to be to make you comfortable with the downside? Not only does risk tolerance vary for each person, it can vary for the same person over time depending on age, changes in life circumstances, what is happening in the market or in other news. Assess your comfort with risk periodically. We have a unique way to determine your risk by answering questions about your behavior.

Is your investment portfolio diversified? Investing 101 says not to put all your eggs in one basket. But what does that really mean? There are lots of ways to diversify – by investing in different companies, industry sectors, geographical markets, asset classes (because having all your money in stocks isn’t really a diverse portfolio), and different investment time frames. Diversification on many levels provides some insulation from market fluctuations, because what is bad for some markets is good for others, and short-term investments provide opportunities to rebalance. Diversification is much like the pistons of an engine moving up and down, driving a car forward. The more pistons in the engine, the more powerful and smooth the car runs.

How involved do you want to be in managing your investments? You can be super-involved, daily if you want; there are many tools and resources available for active and sophisticated investors. We don’t recommend this approach because it is risky and too easy to make emotional decisions that compromise long-term performance. Many people do not have the time or inclination to be quite so involved and may choose more traditional investments or delegate portfolio management to a financial advisor. There are many ways to invest and levels of involvement, but the most important factor is to make sure your investments are in sync with your long-term financial plan.

There is only one sure thing. The market is going to go up! Then it’s going to go down. Then it’s going to go up! Then down … up … down … and so on. Knowing this, keep your eyes on your plan rather than “panic selling” your assets. It is easy to see the market dropping and want to jump out of your investments; as long as you have a long-term plan, investments aligned with that plan and enough cash set aside for emergencies, you should be just fine even in a market downturn.

Our advice to you is to know your goals, know yourself and have a plan. We would be happy to help with any of your investment planning questions and help you develop a plan to meet your life goals.


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