Rarely a day goes by without somebody asking us ‘what should I invest in’?  We believe there are at least 4 fundamental things that we need to know and you need to know before you invest.

  1. Do you have debt?  It might or might not make sense to pay off debt before you invest?  The key words are ‘it might or might not’.  If a prospective investor has debt with a very low interest rate – an example would be a home mortgage with a fixed rate for 15-30 years at a rate less than 4% – then that prospective investor might decide to keep that debt as the ‘cost of capital’ is lower than the expected return of stocks.  On the other hand, if a prospective investor has debt with a very high interest rate – an example would be Credit Card Debt at 14% or possibly higher – then that investor might decide to pay that debt of before investing as the ‘cost of this capital’ is higher than the expected return of stocks.
  2. Do you have an emergency fund?  Depending on a variety of uniquely personal information, it might make sense for you to build-up an emergency fund equal to somewhere between 3 to 6 months of spending.  We would work with our clients to determine the amount of cash they have tied up in checking and savings accounts.  If the magnitude of this cash is insufficient to cover that prospective investors known expenses for a minimum of 90 days, then, we might recommend that this investor create an emergency fund – a safety net – for spending in the event of contingencies either known or unknown.
  3. What is your emotional risk profile?  We know the stock market is volatile, so you have to be ready to ride the rollercoaster. We need to know how you would respond if your investments declined by 50% in value? Thinking through this question is vital and will determine how we invest.
  4. What are your investing goals?  Are you investing to buy a home? To pay for a child’s college?  To pay for a vacation?  To provide for a comfortable retirement?  All of the above?  Different goals require different allocations. Our IAP™ (Investment Allocation Process) is designed to determine where your investments should be allocated with intention and focus on the end goal.

These 4 questions are how we figure out how to invest, when to invest and what to invest in.  The process of creating a Purposeful Financial Plan is very tedious, however, not particularly difficult.

We would be pleased to assist you in creating a Purposeful Plan and invite you to call or email us to get started.

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