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Investing Basics: 6 Things You Need to Know

01/22/2021
A woman looking through papers.

You’ve already taken some investing steps: You’re contributing to a 401(k) or another retirement account. Maybe you have an IRA. You have an emergency fund too. But you haven’t yet taken the time to take a deep dive into investing.

Once you’re making more money and starting to climb the career ladder, it’s a good time to educate yourself on investing basics. Here’s what you need to know:

1. There are goals besides retirement

Retirement may be the ultimate goal, but you probably have other goals that also deserve attention. For example if you have children, you might want to invest money for their educations.

What Are Your Top 5 Financial Goals?

Sit down and list your top five financial goals and think about what steps might help you start investing for them.


If you have a long-term savings goal, like a down payment for a home, setting aside some money to invest gives it the potential to grow until you need to withdraw. Sit down and list your top five financial goals and think about what steps might help you start investing for them.

2. Fees are important

Investors like to look at lots of things about an investment. While past performance is no guarantee of future performance, it’s helpful to see how the investment has fared and how it compares to others in the same category. There’s also another metric that directly affects your returns – the fees. The published returns you see should account for the fees, but keep in mind that the higher the expenses on an investment, the better it must perform to beat the returns of a lower cost investment.

This doesn’t mean you should automatically choose the investment with the lowest fees. Some costs are higher because of the type of investment or where it’s located. For example, bond fund fees are generally lower than stock fund fees. Also, fees tend to be lower on U.S. stocks versus those in non-U.S. markets.

What's more, active funds, which have professionals actively choosing investments, generally cost more than passive funds that are designed to mimic an index.

Bottom line: Research what you’re paying and why you’re paying it.

Some costs to look for include advisory fees, expense ratios, commissions or load fees and transaction fees.


3. Volatility happens

Even if intellectually you understand that the market has ups and downs, watching your investments take a dive may be scary. It’s important to resist the urge to pull all your money out of the market and hide it under your mattress.

Historically, investors who stay invested during downturns see bigger returns than those who try to time the markets by going to the sidelines when markets are volatile.1 Those on the sidelines may miss out on gains when the market recovers. Remember spring 2020? Equity markets lost more than a third of their value, but just months later were nearly back to pre-crisis levels. Of course, not all market recoveries occur this quickly.

4. Diversification is key

Even if you have one stock that’s doing fantastically well, it’s safer not to put all your money in it. Surprising company announcements, changes in laws or regulations or an unexpected event like a pandemic can swiftly change a winning streak.

As you accrue more money in your investment accounts, remember the benefits of diversifying your investment picks between cash, bonds, stocks and other investments. This is especially important if you receive company stock as an employee benefit. A financial advisor may offer guidance on this if you’re unsure of your choices.

The key to managing this risk? Diversification.

Surprising company announcements, changes in laws or regulations or an unexpected event like a pandemic can swiftly change a winning streak.


5. Paying down debt is also an investment

Are you saving for retirement while carrying high-interest consumer debt? Paying down debt also yields a return—in the form of the interest you’re saving over time.

Say you’re carrying a balance on a credit card charging 16% and deciding between paying that off quickly or diverting some of the money to invest. With such a high interest rate, the amount of money you would save by paying off the card quickly may be more beneficial than paying it off slowly to invest in the stock market. So be sure to consider debt and debt repayment as part of your financial picture.

6. Time is on your side

The earlier you start investing, and the earlier you bump up your contributions, the more time your investments have to grow and compound.

Time is one of the most powerful tools in your investment kit.


For instance, a 30-year old making $75,000 per year, who starts putting 10% of their salary each year into an investment account earning on average 6% annually, would reach age 65 with more than $885,000. But someone who starts the same path at 40 years old would have just over $436,000 at age 65.²

The lesson: It’s never too soon to get started saving and investing.

Plan for Your Future

A solid plan and a long-term view are important drivers of investment success. A critical part of making decisions for your plan is knowing how much risk to take with your investments. You can find out by getting a personal risk assessment. We also offer advice and planning options to fit your financial world.

Need Help Getting Started?

Let’s talk.

1

Morningstar, 3 Charts That Show Why Investors Should Stay the Course Throughout Market Turmoil, March 2020, https://www.morningstar.com/articles/972119/3-charts-that-show-why-investors-should-stay-the-course-throughout-market-turmoil.

2

Source: American Century Investments, 2021. These hypothetical illustrations reflect results of contributing $7,500/year for 35 years and 25 years with a 6% rate of return. These hypothetical situations contain assumptions that are intended for illustrative purposes only and are not representative of the performance of any security. There is no assurance that similar results can be achieved, and this information should not be relied upon as a specific recommendation to buy or sell securities.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

Diversification does not assure a profit nor does it protect against loss of principal.

As with all investments, there are risks of fluctuating prices, uncertainty of dividends, rates of return and yields. Current and future holdings are subject to market risk and will fluctuate in value.

You could lose money by investing in a mutual fund, even if through your employer's plan or an IRA. An investment in a mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.