If there is such a thing as an investing rut, I often worry that I'm in one. As a relatively new investor, I max out my IRA every year, but that’s about all I do. There is no second tier to my investing process, so I have been trying to learn more about other means of investing in hopes that I will invest more, or at least strengthen my current investments in the new year.
I think a lot of young professionals are unsure of where to put their money beyond the 401(k). If you’re someone who has resolved to become a better investor in 2017, here are some starter tips. To help guide these tips, I spoke with investment expert Hans Scheil, who is the president of North Carolina-based Cardinal Retirement Planning, Inc., and the author of The Complete Cardinal Guide to Planning for and Living in Retirement. A 40-year veteran in the financial services industry, he works to help investors create a diverse and stable investment portfolio.
1. You should only invest beyond your 401(k) and IRA if you are already contributing as much as you are allowed to.
Scheil stresses that making the decision to invest beyond a 401(k) or IRA should only come when you’re comfortably maxing out your retirement accounts. He says, "This is due to income taxes. It's hard to pass up tax deferred or even tax free. The first step is planning and deciding how much you have to invest, where the [additional money] is coming from (regular income, a bonus, inheritance, sale of an asset, gift, money in a savings account, etc.), when you might need or want the money, and how much risk you can stomach.”
2. Don't get overly hung up on daily market volatility.
“Novice investors are too easily influenced by daily market movement and trying to time their investing. You are never going to get in at just the right time nor will you be getting out at just the right time. Dollar cost averaging or investing at regular intervals will even out the highs and lows,” says Scheil. The logic here is, if you’re in your late 20s or early 30s, the fluctuations of the market on one given day are unlikely to have serious consequences to the retirement money you’ll need to withdraw 30 years from now.
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3. Before pursuing new investments, make sure you completely understand your existing portfolio.
Scheil provides a check list of questions to ask yourself: “If you have new money to invest, I suggest a quick review of the existing portfolio. Is it properly diversified? Are the investment positions meeting your expectations? Are the investments performing well relative to their risk and the markets? The answers to those questions will tell you if the new money should go into the same investments.”
4. The right investment answer for you might not be just opening another account.
I asked Scheil about three different types of investments, and here is how he responded to each. (This reflects his personal expert view, but is certainly not the final answer in the investing conversation.)
Opening another investment account? “Another investment account is needed only if it has a different tax status or different names on the account.”
Investing in one specific business? “I [prefer] diversification unless you personally own and manage the one business you are investing in.”
Real estate? “Real estate is great in a portfolio as an alternative investment with a portfolio of stocks, in the appropriate amount. It is also good to own real estate directly. However, real estate can be hard to sell and bothersome to manage.”
5. When pursuing new investments, think about what will succeed in 2040-2050.
Scheil says the best thing for millennials looking to further their investing strategies is to “stay in the stock market for the long haul and see market pullbacks as buying opportunities.” He also challenges us to really think about what is going to have long-term value when considering stocks.
“Ask yourself, what is going to be worth a lot in 2050? What stands to earn a lot between now and 2050? Clean energy, bio tech, services and goods for the elderly, goods sold to developing economies, etc,” says Scheil. "You might consider companies like Google, Apple, CISCO, Tesla, Amgen, and CVS, to name a few.”
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