For most young couples, the world of investments is complex, intimidating, and/or not a realistic option given their limited savings. Our freebies and related tutorials and posts will help you pay off your debt and grow your savings, but how do you know where your newfound savings should go?
There are thousands and thousands of financial products all vying for our attention and money. News stories swirl around our heads regarding the impact of trade wars between the US and China, scandals with Russia, and Kanye West running for president in 2020. Because of this everyone has their own view on where the stock market is heading.
Psychologically, humans aren’t built well for investing. We’re terrified of seeing our investment value fall and feel like we made the wrong decision. When we see values rising, we’re itching to buy and participate in the next great boom. As a result, we fall into the trap of herd-like behavior, when that’s usually the last approach we should take.
“Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffett
During the 2008 crash, most people sold on the way down or near the bottom. As the stock market continued to grow after The Great Recession, we kept on buying. In today’s markets, we’re seeing significant gains one day followed by significant losses the next. This volatility and uncertainty can be paralyzing and cause people to ignore investing all together.
Investing doesn’t sound all that great….why should we do it?
Simply stated, you invest to provide yourself with more financial flexibility in the future. Investing represents an opportunity for you to stretch those hard-earned dollars a little further. If we don’t, we not only lose an opportunity to grow our net worth, but we’ll also find it difficult to keep up with the rate of inflation.
Inflation is defined as “a general increase in the prices and fall in the purchasing value of money.” As an example that we all know, a new car costs a lot more today than it did in 1950. It’s easy for young couples to lose sight of the impact of inflation, as it has been historically low (around 1-2%) for the last few years.
While your income will likely grow alongside (and hopefully much faster than) inflation, your savings under your mattress or in your low-rate savings account will not.
The Market Will Be Volatile, But Your Plan Shouldn’t Be
We’ve mentioned investing can cause some major headaches and unsettled stomachs. As a result, if couples do invest, we typically see one person in the relationship that attempts to tackle the task, while the other person happily takes a backseat and crosses his/her fingers hoping for the best. If the investments do well, the investor in the relationship feels on top of the world and gets to gloat about his/her success. When the value tanks, there can be overbearing blame and resentment within the relationship.
But like most areas of finance, it can be broken down into simple concepts and automated systems that you both can understand, do together, and stress less about.
Below, we’ll lay the foundation and start out with some basics. While some points may seem obvious, even the most seasoned investors often lose sight of these guiding principles. Going forward, we’ll continue to dive into investing topics to help set up your investment plan for financial success.
Principle #1: There’s No Free Lunch
As with almost all things in life, you don’t get a good return without your fair share of risk or sacrifice.
Want to get in shape? You’ll probably need to put in the time at the gym and sacrifice that Bloomin’ Onion appetizer.
A close and rewarding relationship? You’ll need to devote the time and money to make sure your significant other feels valued and special.
If anyone promises you an opportunity for a significant investment return with a low risk, be cautious. Do your own research and make sure you understand that the majority of these opportunities are not what they’re promised to be.
Which leads right into the next one.
Principle #2: Individual investments are predictably unpredictable
Turn on the TV, read a newsletter, or talk to family and friends and you’re most likely bombarded with opinions regarding the next great investment. It could be that stock promised to be the next Amazon, or these days, that cryptocurrency with the “best team of developers in the world.” Either way, it’s important to realize that people do not consistently identify the best investment opportunities. Even if someone was consistently right, there’s no easy way for you to figure out who that is, regardless of what the individual’s past success looks like.
We’ll walk you through our recommended, diversified approach for your main investments in later posts. But this doesn’t mean you can never participate in riskier, individual investments once you’ve developed financial flexibility. As we mentioned in a prior post, by growing your net worth and covering your savings goals with our tools and methods, you should be able to reach a level where you can afford to take on additional risk for a chance at higher returns.
Do you currently invest in stocks, bonds, etc. or have you been too afraid to start? How have you handled investment responsibilities in your relationship? Comment below and let us know!