Investing 102 – Where do I begin?

Once you understand the basic concept of investing – your money makes money for you – and decide to begin investing, where should you start?

Different financial experts have different opinions on this, of course. First, most agree that you should find a financial advisor. Despite costing fees, sound financial guidance will save you far more than the cost of the advisor.

Second, you should ensure that your financial advisor owes you a fiduciary duty.

Third, as Dave Ramsey says, find an advisor who has the “heart of a teacher.”

The Dollars and Cents

Full disclosure, hiring an expert to guide your financial decisions costs more than not hiring one. It seems obvious, but in today’s world where you can invest through an app with no transaction fees but without any guidance, I want to point this fact out.

Is it worth it? Personally, I use a financial advisor for my main investments and I also use investment apps that I can play with for a hobby (and test them for a future blog post).

Further, it is very important to have someone providing a neutral viewpoint on your investments. Further, many investment advisors have their own investment advisors for their personal funds. This is not because they are not experts in the field. Rather, having an advisor can help provide a neutral third-party view of your situation.

Emotions are your enemy when investing. In “The Behavior Gap,” Carl Richards writes about the phenomenon of individuals buying when the market is high and selling when the market is low. (as r/WallStreetBets says “Buy High/Sell Low”). And, as I quoted on my previous post, Warren Buffett says to buy when people are fearful and sell when people are greedy and buying.

Today, we are in the midst of economic uncertainty and the stock market is low; however, just like in 2008, people are selling out for fear that their investments could go lower. A financial advisor is there to recommend prudence and help convince you to ride out the storm or to sell.

The Fiduciary Standard

Financial advisors are either fiduciaries or non-fiduciaries. When a financial advisor is a fiduciary, then the advisor has a legal fiduciary duty to you, which means that they must act in your best interest, even when it is contrary to their best interest. When looking for an advisor, first ask if they are a fiduciary. If the advisor is not a fiduciary, look for another advisor.

“Heart of a Teacher”

Many people avoid talking about money, investments, and financial planning because they are not knowledgeable about how to do it. When selecting your advisor, find someone who is willing to patiently explain the investments until you understand how it works – I promise, it is less scary than you think.

Again, Warren Buffett has a quote that explains this concept: “Never invest in a business that you cannot understand.”

When an investment is too complex to understand, such as how mortgaged-backed securities appeared to Warren Buffett, avoid it! You don’t need complexity to invest well. All you need to do is start.

“Just Do It” ~ Nike

Remember the key to investing, whether it be for retirement, for a big purchase, or for a big event, you just have to start.

For advice on how to set money aside for investing, check out my Budgeting posts for recommendations. Please leave a comment below about good and bad situations you’ve had with your financial advisors.

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