Ready, Set, Start Investing!​

Published May 12th, 2022  

Reading Time: 5 minutes

Written by: The Zoe Team

Investing when you’re not ready could have more cons than pros. Here are a couple of non-negotiable items and steps you should consider if you’re not sure you’re ready to start investing. 

Are you a high earner looking for a thoughtful way to grow your wealth? You’ve likely already dipped your toes into the investing waters, but there is plenty to keep in mind as a do-it-yourself investor looking to continue to protect your future. 

Nowadays, the barrier to entering the investing world has virtually disappeared. It’s frictionless, convenient, and easy! The investment options available to you are endless, and odds are, there’s something out there for you. But before you decide to make the jump (or opt to “buy the dip”) into the investing world, a few prerequisites will help set you up for success. From understanding how your investment strategy fits into your financial plan to evaluating the risks associated with investing, there is plenty to consider.

Investing when you’re not ready can have more cons than pros. Here are a couple of non-negotiable items and steps you should consider if you’re unsure. 

Non-Negotiables Before You Start Investing 

We like to think of investing in three stages: Ready, Set, and Invest. We’ll walk you through the non-negotiables for each step. 

Ready 

The “Ready” stage will ensure you have the prerequisites in place to start investing. 

Are you prepared for the unexpected?

Before you start investing, you need to have your emergency fund set up. An emergency fund is a pool of money that you will drain first if something unexpected happens (loss of income, medical bills, etc.). Your emergency fund should be:

  • Easily accessible
  • Not in a retirement account (meaning it’s not subject to taxes upon withdrawal) 
  • In cash (not subject to market fluctuations) 

Typically, an emergency fund should equal three to six months of expenses. So, for example, if your monthly expenses are $5,000, you should be holding $15,000-$30,000 in cash. 

Having an emergency fund set up will give you peace of mind that if something unexpected happens, you’re covered. Most importantly, you won’t have to dip into your investments designed for longer-term goals. 

What’s your next big purchase?

Before putting your money into investing, think about your current goals and their time frames. For example, are you planning to buy a home? Or take a much-needed vacation? If you have a major expense coming up in the near future, the money needs to be set aside with your emergency fund. 

Investments tend to move with the stock market, which has ups and downs, and you need to be able to keep your money invested for the long haul, including through market downturns. If you’re planning on using the money within five years, you shouldn’t invest it in the market. 

Are you adding to your nest egg?

Saving is a component that should be present in your everyday life. Consider your cash flow. What money is coming in versus what is going out every month? Are you saving at the end of each month?  To be clear, this does not mean saving today and spending it a few weeks later. Saving is not needing the money in the foreseeable future. If you consistently save each month, even if it seems like a small amount, you might be ready to start investing. 

The snowball effect of saving and investing may surprise you!

Set

Now the fun part. If you’ve checked all of the above, you’re ready for the next stage: figuring out the how

DIY or Outsource

Whether you’re just starting to invest or have been investing for a while, the ongoing decision is: who is managing the investments. There are three considerations when making this decision:

Time: Investing is not entirely a ‘set it and forget it’ endeavor. There is a time commitment for monitoring the investments for risk, quality, diversity, and performance, to name a few. The amount of time needed will vary depending on your goals. While this may not be a 40-hour-per-week commitment,  nor should you be glued to your phone checking volatility’s impact on your accounts, it should never be a 5 min per week commitment. 

Assessing the time commitment required for your specific portfolio is the first step to determining if you should manage your investments or outsource.

Knowledge: There are millions of articles related to investing. But, again, depending on your goals, you probably don’t need a Ph.D. to invest money appropriately. With all the information available, there is a lot of potential for rabbit trails during research. 

Investing also takes practice, you might not do it right the first time or the 50th time, but there are plenty of learning opportunities that come along with investing. But, again, hindsight is 20/20.

Desire: Knowing that there is a time commitment necessary and ongoing education, desire is the last factor for true DIY investors. Typically the ‘desire’ stems from a cost or control perspective. However, if cost and control weren’t a factor, would you want to manage your own investments? 

Some people genuinely enjoy this part of their financial life and should lean into what brings joy! Finding a trusted financial advisor to steward your investments is the best next step for those who would instead focus their time and energy on other expertise. 

Invest: Now get the ball rolling

At this point, if you’ve checked off the pre-requisites and figured out how you’re going to manage your investments: You’re ready to start investing! 

Let’s say you’ve decided to tap into a professional to handle the implementation; in this case, be sure to pick someone who understands your situation and goals and could invest better than you could do so yourself. 

Your financial situation, time frame, risk tolerance, and goals are critical factors for determining an investment strategy. These need to be discussed whether you are building your investment strategy on your own or if you hire a financial advisor to manage your assets for you. 

You’re Ready to Start Investing! 

When done thoughtfully and strategically, investing can help you reach your goals. However, it’s like driving without a map without an end goal in sight. Investing without direction or goals could lead you to take on unnecessary risks or feel outright terrified during market fluctuations. 

If done right, investing can be an exciting way to build your wealth and work towards your goals. But don’t allow the excitement to overshadow all the other necessities. 

While building an emergency fund, identifying goals, and reviewing cash flow may not seem exhilarating, they are crucial in setting up for success. 

Deciding that you are ready to invest is just the start!

Disclosure: This blog is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.

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Published March 16th, 2022 

Reading Time: 3 minutes

Written by: The Zoe Team