Author: Lb
You will be looking for a financial planner when you have funds available to invest, or you need to make decisions about existing investments. You do NOT need a financial planner if you have any credit card debt or other high interest debt.
The best investment you can make is to pay off these debts because they charge you more interest than you can make in any investment.
Assuming you have gotten yourself out of debt, and are producing extra income, congratulations!! You are on your way to financial freedom and security.
Before you do anything else, make sure you are taking fullest advantage of your 401K plan. Most companies provide some matching funds AND all income that goes into your 401K is exempt from income tax. This is the best first step toward building toward retirement.
A financial planner is a person who provides counsel on how to put your money to work. They will want to know what your financial goals are, such as children's education, retirement, risk tolerance, income and debt.
There are two types of financial planners:
1. Financial planners who charge for their time and advice, but do not sell financial products. This is the best way to start. They are not motivated by commissions and provide objective information on how you should build your financial future, including life insurance, long-term insurance, and investment advice. This type of financial planner will be most engaged with your personal needs on a one-to-one basis. To find professionals, look for designations such as RFC (registered financial consultant), ChFC (chartered financial consultant), CFP (certified financial planner), or membership in the National Association of Personal Financial Advisers.
2. Brokerage companies who provide financial products and earn commissions on what they sell to you. They will also give you a questionnaire to determine the best match for your investment strategies and then propose the best investment options. If you are just starting, get a local person with whom you can have face-to-face discussions and is easily accessible for any questions you may have. There are now many on-line investment companies, but these should be reserved for those with a high level of investment experience and knowledge.
Talk to friends, work colleagues and family. The best way to insure finding the right person is through a personal reference. It is strongly recommended that you do not use a friend or family member who is in the financial services business. Investment jitters can cause bad feelings.
Nobody has a crystal ball
The ups and downs of the financial markets can cause euphoria or anxiety. Nobody can anticipate the stock or bond market. Beware of any promised "magic". This can be a scam. The average return on the stock market over time has been 12% per year, considering the up and down times over many years.
Time is Your Best Friend
Investments are long-term propositions. You must be prepared to ride the roller-coaster of the market, knowing that over the long-term, it will give you a good return on your money. Learn about dollar cost averaging -- meaning that you invest a specific amount each month, so you buy when the market is high and when the market is low. This increases the overall growth on your money.
Be informed and Be Diversified
The economy and the best investment strategies are always changing. Educate yourself by reading about current trends. Usually, the current top performers are peaking and next year, something else will be on top. Diversify your portfolio to offset the peaks and valleys in the various investment options.
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