You hand over a check, sign the papers and walk out of your financial advisor’s office with an empty feeling in your stomach. As you walk through the bank hallway you’re thinking about your recent investment and wondering if you made the right decision. At the same time you’re thinking about all the other things you could have done with that money, other than save for your future. Have you ever been there?
If you answered yes, don’t worry it’s normal. As a financial planner I think it’s healthy to second guess ourselves; it shows that we are considering all of our options before making investment decisions and that’s the smart thing to do. So here’s the question, how do you know if you’ve made a good investment? Well I don’t think anyone can answer that question; all we can surely know is if we made the best decision for us.
Don’t bet on the future
There’s a reason they call it personal finance because just like spending, saving money is a personal decision. There is no one-size-fits-all solution to making money when it comes to the stock market. I wish I could see the future and tell you how the market is going to perform but unfortunately I don’t have that ability – otherwise I’d be a billionaire. If someone tells you to buy an investment because they know it’s going to give a good return in the future they’re lying. If the investment actually turns out to perform well they just got lucky.
Sometimes I wish I had a crystal ball or the ability to see the future like Alice in Twilight, but I don’t – besides that would take the fun out it. I for one am not a high risk investor; I tend to invest in an equal balance of conservative income funds and growth oriented equity options. Yes that’s me, a typical Libra, unable to make a decision so I just split it down the middle.
Do what’s best for you today
I don’t know if investing conservatively is the best advice I can give myself, actually I know it’s not. I have several (almost 25) years until I retire and therefore I know I should be taking more risk with my investments. Over the long term higher risk equities are supposed to outperform lower risk options.
If you walked into my office, as a financial planner that’s the advice I’d give you. I would tell you it’s O.K. to take a little more risk now because you have a longer time horizon and should recover any short term losses over the long term. But it doesn’t matter what I say. All that matters is you do what’s best for you and what you’re comfortable with.
Make sure you’re comfortable
I wouldn’t be comfortable knowing that another market crash could wipe out my life savings and neither should you. Yes it would be nice to have a 25% return on my investment portfolio over the next five years but what if the opposite happened? If there is a possibility your investments could lose 25% over the next five years would you be happy? I wouldn’t.
I don’t think financial planners stress this point enough. Just as your high risk investments can go up substantially they can also drop in value just as easily. Before you purchase an investment have a look at how it has performed historically to give yourself an idea of the fluctuations. Although past performance is no indication of how investments will perform in the future, seeing the variations in a graph (or in numbers) might give you a better idea of whether you’re ready to invest your hard earned money.
Tahnya Kristina is a personal finance blogger and Certified Financial Planner. She enjoys helping people land their dream job, achieve financial success and find personal happiness. Say hi anytime www.twitter.com/tahnyakristina
