By Michael Martin and Jamie St. Clair
With the volatility of today’s markets and a seemingly overwhelming number of investment vehicles to choose from — stocks, bonds, mutual funds, insurance, etc. — it is no wonder that some people get confused about their options and put investment planning on hold.
However, when it comes to planning for their futures, potential investors should be thinking “carpe diem/seize the day” because there really is no better time than today to take stock of your current financial situation, establish spending priorities and develop a plan.
Your financial clock is ticking
Young or old, time stops for no one. Every day that passes where you hold debt or your money is not earning you more money is a lost opportunity. This is true whether you are 6, 16 or 66. So the first thing to do is to review your current financial situation. Analyze the following:
• How much money you earn;
• How much money you spend;
• Your monthly debt obligations; and
• Your total debt
Establish what your short- and long-term goals are. Do you have a family? Do you want to start a family? Do you need to put yourself through college? Do you want to put your children through college? Do you want to travel, retire early, or build your dream house?
These are important questions to ask. When weighed with your financial situation, they help establish priorities and shape your plan. They help you determine what your goals and dreams are for the future, and they equip you to make informed decisions about what type of investment choices might be best for you today.
Pay down high-interest debt before investing
One of the moments that will let you know you might be ready to start investing is when you stop receiving monthly credit card statements you cannot afford to pay off.
Ultimately, the bottom line is this: while not all debt is bad debt, high-interest rate debt is a financial killer. So before you start investing, you should consider starting to pay down the debt that can be holding you back. It may take time, and it may seem counterintuitive to the principal of compounding interest, which basically states that the interest you earn on your money accumulates faster than if you wait and invest large amounts, but any high-interest rate debt you carry can erase the gains of even the highest performer in an investment portfolio.
So pay it down, and pay more than the minimum balance due. More important, embrace paying down debt as part of your plan, because being debt free is your first step toward financial independence. It is a milestone you should celebrate. Once your debt is paid off, set aside at least three to six months of reserve savings for emergencies. This will give you a cushion so you don’t have to resort to that high-interest credit card you just paid off.
How to start investing
With your high-interest rate debt paid off and emergency savings in place, it’s time to start working toward well-defined financial objectives that encompass short-term, mid-term and long-term goals. A sound investment plan balances risk and return in accordance with your stated investment objectives. It may be worth your while to go over your plan with a financial advisor.
The key is to start immediately and stay consistent. Pay yourself as you would pay your utility, credit card or auto loan companies. Set up a savings account for easy transfers; separating your savings will keep it easy when it is time to invest.
If your goal is to save in the short-term, consider a low-interest savings account, money market funds or certificates of deposit. If you are looking to invest for the long-term, you can choose from a variety of investment products based upon what level of risk is acceptable to you, including stocks, bonds or mutual funds. And if you are investing for your retirement, the IRA (individual retirement account), Roth IRA, 401(k) and 403(b) are all options that offer the advantage of tax-deferral. Take advantage of employee-matched contributions to your 401(k) if your company offers it. The important thing to remember is this: even if you begin with small deposits, the compounding returns will add up.
Stay true to your goals and values
Whatever your savings and investment plan encompasses, the focus should be on maintaining a portfolio that reflects your values, risk tolerance and retirement goals. No matter what your stage of life, you should take the time to regularly reevaluate your financial goals. They can change … at the drop of a hat. And if they do, your portfolio and plans should reflect that. A financial advisor can guide you along every step of the way.
About the authors: Michael Martin is vice president and financial advisor for Key Investment Services serving Aroostook County. He can be reached at 207-834-4866 or mmartin@kisinvestments.com. Jamie St. Clair is vice president of KeyBank and area retail leader overseeing Key’s Northern Maine and Bangor area branches. He may be reached at 207-945-0639
or Jamie_A_StClair@KeyBank.com.
