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Financial planning for the first time investor

Financial planning for the first time investor

If you haven’t started investing, you may regret it down the road. Taking small steps today could make a significant difference in increasing your net worth, for example starting an emergency fund, a financial plan, hiring a CFP, and diversifying your investments. But you have to get started! This article will provide a few simple steps for the first time investor.


Do set aside an emergency fund

Before you start investing, aim to keep three to six months of living expenses on hand for any short-term emergency needs such as losing a job, car repairs, or unexpected medical bills. An emergency fund can keep you from derailing your investment plans. Since markets can be volatile which may result in a decline or loss of principal, a short-term account such as checking, savings or money market may be more appropriate to hold these funds.

Do create a financial plan and stay disciplined

Investing should tie into your overall goals such as retirement, buying a home, or paying for college. After you have defined your goals, decide what type of account you should set up to reach these goals – a retirement account (such as an IRA, Roth IRA, 401(k), 403(b), 457), a taxable (non-retirement) account, or both. How often do you want to invest – i.e. monthly or per pay check? If you are saving to an employer provided retirement plan, aim to contribute at a minimum the amount needed to receive the employer match, or you could be leaving free money on the table.

Do educate yourself on investments and take advantage of free resources

There are many great resources available to get you started, and many are free! Check out online resources such as Investopedia, Yahoo Finance, MSN Money, and Mint. Wondering what the Individual Retirement Account (IRA) limits are this year? The IRS’ website provides updated contribution limits and details on retirement plans. Many large brokerage firms give you access to “learning centers” to help you navigate the investment world. If you have a retirement plan available through your employer, they may host free education sessions or have a financial advisor you can speak to – check with your HR department. The Financial Planning Association hosts free financial planning days.

Do consider hiring a CFP® professional, even if only for hourly work

I once hired a nutritionist for just a few hours to educate me on eating healthier. Those few hours resulted in a few minor tweaks to my diet, which over time have led to a world of difference in my health. The same holds true for your finances. Many CERTIFIED FINANCIAL PLANNER™ professionals offer hourly work. You can locate one in your area by visiting Lets Make a Plan. A few hours of professional financial advice now could make the difference between a comfortable retirement or running out of money.

Do try to keep it simple

If you keep your plan simple, you are more likely to stick to it and be successful. If your employer has a retirement plan available to you, you may have the option to have your contributions automatically deducted from your pay check per pay period. Also consider linking bank accounts to brokerage accounts for automatic transfers, so saving is as easy as clicking “transfer.” Consider setting up automatic dollar-cost-averaging into investments where you buy a fixed dollar amount of an investment on a regular schedule.


Do not forget to diversify

The saying “don’t put all of your eggs in one basket” is especially true for your investment portfolio. Be aware of the risk associated with having too few holdings (investing in one stock, for example, versus a broadly diversified mutual fund). Asset allocation is a strategy that aims to help mitigate risk and possibly market volatility, by diversifying into a variety of holdings in your account. The holdings you choose should be based on your individual goals, risk tolerance, and investment horizon.

Do not trade too often

If you find yourself checking your accounts daily you probably are not doing yourself any favors. More likely you are creating unnecessary stress and anxiety. By having a financial plan in place detailing out your long-term goals and creating a portfolio that reflects them, you will have a better chance of staying on course and avoid unnecessary trading. Excessive trading also leads to more transaction costs and often unwelcome tax consequences, which can eat into your account balance.

Do not panic, it can lead to irrational decisions

The stock market can be volatile and it is important to have an understanding of your risk tolerance and how much volatility you can “stomach.” Panic tends to lead to irrational decisions. If large market dips make you uneasy, consider investing in a portfolio that is more conservative. Would you rather buy your favorite pair of jeans on sale or full price? On sale of course! By panicking and selling at a market dip you are essentially doing the opposite. Instead of panicking, view market dips as potential opportunities to buy investments.

Do not be overwhelmed by too much data

Do you suffer from “information overload?” Turn off the market talk shows and take a deep breath! With market and economic data everywhere it is easy to become anxious and uncertain on how to interpret it. Find a few high-quality, well-respected investment resources that you feel comfortable with and screen out the rest. Also, don’t be persuaded by “water cooler” talk and be tempted to buy last year’s best performing fund, for example, just because your friends did. Do your own research to make sure an investment is appropriate for you.

Do not invest and forget to review your portfolio

Don’t forget to check your accounts and rebalance, if appropriate, at least annually. Rebalancing allows you to realign your portfolio to the allocation you deemed to be appropriate for your risk tolerance, time horizon, and goals. When you rebalance your portfolio it can feel counterintuitive (“why would I want to sell a security performing so well”), but rebalancing can keep your portfolio in check. Have a retirement plan at work? Many plans allow you to set up automatic rebalancing annually, semi-annual, or quarterly.

Jumping cartoon

Hopefully you have gathered from these simple steps that investing does not need to be complex or overwhelming if you are a first time investor. Start small, do your homework, and create a financial plan. By taking these simple steps now and implementing an investment strategy, you will get on the right track for a better tomorrow.

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Laura Knolle is a CERTIFIED FINANCIAL PLANNER™ with Ballou Plum Wealth Advisors, LLC, a Registered Investment Advisory (RIA) firm in Lafayette. Laura is also a Registered Representative with LPL Financial (LPL). The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendation for any individual. Financial Planning offered through Ballou Plum Wealth Advisors, A Registered Investment Advisor and a separate entity.

Securities offered through LPL Financial, member FINRA/SIPC. No strategy ensures success or protects against a loss. Stock investing involves risk including potential loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns. Asset allocation and diversification do not protect against market risk. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Such a plan does not assure a profit or protect against loss in declining markets.

Photo Credits: © kentoh -; Check Man, Cross Man and Jump Man © ioannis kounadeas -

Laura R. Knolle, MS, CFP®Vice President

Laura R. Knolle, MS, CFP® is a Vice President with EP Wealth Advisors. In her role with the firm, she specializes in working with clients to bring together all the pieces of their financial lives. Her expertise includes every aspect of financial...

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