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Three easy ways to start investing

As a Financial Advisor, I get asked a lot of one-off questions from my friends and family members. I want to start this article by saying, that is completely fine, keep asking questions. I truly love helping people any way I can. With that said, you are not really utilizing this relationship to its full potential.  If you have someone in your life that is a Dentist, go get your teeth cleaned a little more often. If your best friend from high school is a Chiropractor, go and get adjusted on a regular basis.  If you have a relationship with a Financial Advisor, schedule meetings with them at least once a quarter, have them build you a financial plan. 

This column is to answer some of those one-off questions I receive from my friends and family.  I get a lot of the same questions.  If the people in my life are asking them, then I am sure a lot of our readers have the same ones. 

This week I am answering one of my favorites…

“Alex, what is the easiest way to start investing?” 

Here are 3 easy ways to start investing:

First, start contributing to your 401k. I know that not everyone has this option, but if you do have a 401k, 403b, or any other kind of work sponsored retirement account, this is a very easy way to invest. Most of these plans are close to free by having very small management fees. If your work offers any kind of matching, you should take advantage of that amazing benefit. A standard saying in my industry is, no financial advisor can beat an automatic 100% growth. That is essentially what is happening with a company match. Let’s say that your company offers a 3% match. If you were making 50k a year, 3% a month would be $125. Your company would be giving you an additional $125 a month through the match.  That’s awesome. Especially when you factor in compounding.  A topic I’ll cover in another article.

Besides a work sponsored retirement account, the second easy way to start investing is to open up an IRA (Individual Retirement Account) or a Roth IRA. A Roth IRA has income limits. You can’t make over $140k/year as an individual or $206/year as a married couple. I am a huge fan of Roth’s for a lot of reasons. The money in a Roth IRA is what we call “after-tax dollars”.  The after-tax-dollars grow tax free. The big benefit of a Roth IRA over either a traditional IRA or traditional 401k, is you won’t have to pay tax on either the initial investment or the growth during retirement. Another way to think of this is, “Would you rather pay tax on the tree or on the seed?”. Let’s look at another hypothetical. If you put $500 a month into a retirement account for the next 30 years and get an average 7% rate of return, you would end up with $614,044. That breaks down to $180,500 that you personally contributed over the years and $433,544 of compounded interest. If this money is in a Roth IRA, at retirement, all of this money is yours. If this is a tax deferred account like a traditional IRA or a 401k, you still have to pay ordinary income tax when you start pulling the money out. Because we don’t know what the tax laws are going to be 30 years from now, it’s impossible to understand what that tax consequence is going to be. For me, I would rather pay the tax now on the $180,500 and not the total $614,044 during retirement.

The third easy way to start investing I want to mention is to open your own individual investment account using one of the many DIY digital platforms out there. I don’t want to mention any by name, because I don’t want that to be misconstrued as a recommendation or endorsement. Most of these platforms have almost no minimum to start. I have a friend who contributes $10/month, and he does it all through an app on his phone. This method is known as dollar cost averaging, which is one way to invest effectively with out trying to time the market, which is something to dive into more in a future article.  My one caveat to this third easy option is that it is great to test out the waters of investing, and it’s fine if it evolves into your “play-money” investing account, but you really want a financial professional to handle your retirement accounts, children’s education accounts, and large investment accounts.

I hope this information helps you out. These are the 3 easiest ways for people to start investing and nothing is stopping you from doing all three.  Many of my clients max out to the matching contributions on their 401k at work, they either have a Roth IRA or a Traditional IRA with me, and they also contribute a few hundred bucks a month into their personal investment app on their phones. The possibilities are endless.

If you would like to talk to me to learn more about any of these tips or to set up a time to have a more comprehensive discussion, I would be happy to talk to you.  

-Alex


Alex Garner is a licensed Financial Advisor, but do not take the information in this article as financial advice.
Examples are hypothetical and for illustrative purposes only. The rates of return do not represent any actual investment and cannot be guaranteed.
Registered Representative, Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer, member FINRA/SIPC.
Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Garner Wealth Management LLC and Cambridge are not affiliated.
The information in this article is not financial advice. Diversification and asset allocation strategies do not assure profit or protect against loss. Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including loss of principal.




List of things to consider when selecting or working with a financial advisor

It’s an early Monday morning, I just sat down at my desk and started work for the day. My phone rings, when I read the caller ID, I notice that it’s one of my old clients from when I worked for a different financial firm. This client always had her money managed in different locations, I managed a portion, her bank managed some, and she also had some of her money in a few annuities with a third financial institution. Her call was out of the blue as I had not talked to her in over 2 years. She asked me a lot of questions because she was having concerns about her new advisor and some of the recommendations that he was recently making; “Why does he want me to convert money to a life insurance policy?”, “Why does my bank want to sell me another annuity?”, “Do they get incentivized to sell me different products?”. I listened to her vent and say all that she had to say before I offered any kind of response. This is a topic that I am extremely passionate about, so I needed to take a second to calm down and gather my thoughts. 

Conversations like the one I just described is the reason why I decided to start my own business. I was tired of feeling like I wasn’t encouraged to offer my clients exactly what I felt was in their best interest. I gave her some advice on what she needed to do, but after getting off the phone, I realized that I could have worded it differently. I was not sure I adequately made all the points that I wanted to make.  As soon as I put the phone down, I decided that I needed to go and write an article about this to pass on some insight to other people. If this person was feeling this way, I am sure a lot of other people feel the same. 

Here is my list of things to consider, questions to ask yourself, and questions to ask your financial advisor.

First, do some research on the firm and the advisor you plan to use. You want to know what kind of advisor and business that you are working with. Go to brokercheck.finra.org. Here you can look up the name of the advisor you are considering to see what licenses they have and if they have any complaints. Also, go to their firm’s website. Almost anyone can call themselves a Financial Advisor. You want to know what kind of advice they really give. Sadly, a lot of advisors are only capable of selling certain products, like annuities or life insurance, so those are the products they recommend. It’s not always based on what is in the best interest of the client. 

Second, ask the advisor how they get paid and if they get paid differently for different products. A lot of advisors use a fee-for-service model, usually charging a fee of 1%-3% on the assets they manage for you. Some advisors charge a commission on the products they offer. For financial advice, the advisor may charge an hourly or set fee for a financial plan, or they may charge a monthly subscription service. The basic thing to understand is, there are lots of different ways that advisors can charge you. You need to ask and understand what you are being charged. 

Lastly, ask the advisor about their investment philosophy. If you and your advisor don’t see eye to eye on anything and they aren’t willing to take your thoughts or beliefs into consideration, they are probably not a great fit.  Here are a couple of examples: What if there are things that you don’t want to be invested in, like tobacco or fossil fuels?  You have the right to tell your advisor that you don’t want your money invested in those kinds of businesses. What if you are extremely conservative with your money, but the advisor wants to put you in all speculative and risky investments? Once again, that’s probably not a great fit. 

If you are going to have someone manage your life savings, you need to make sure you know, like, and trust them. It doesn’t take a lot of time, but it is important to do your due diligence making sure you have the right person for the job.  


Alex Garner is a Financial Advisor, but do not take the information in this article as financial advice. 

Registered Representative, Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer, member FINRA/SIPC.

Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Garner Wealth Management LLC and Cambridge are not affiliated.

The information in this article is not financial advice. Diversification and asset allocation strategies do not assure profit or protect against loss. Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including loss of principal.