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Back to School, Back to Basics

Aug 30, 2022 | Laura Herrera


School is back in session as Laura Herrera shares the five basic principles of successful investing.

Back to School, Back to Basics

As summer winds down many of us are focused on back to school. Within our team we have a few milestone school years on the horizon. John Hershey’s daughter, London, soon begins her senior year at Foxcroft School. London enjoyed many college visits and tours over the summer and we look forward to her plans after graduation from high school in the spring. Earlier this year, Jennifer Brandenburg’s daughter, Haven, received her undergraduate degree and this fall she begins Physical Therapy school at Messiah University. Haven’s brother, Jake, graduated from Middletown High School and he is starting the Construction Management program at Frederick Community College. We wish London, Haven, Jake, and all students a fantastic school year!

Here at our office, school is always in session. We continuously work to expand our knowledge and sharpen our skills. As time passes and the stock market moves through cycles, especially in years with increased volatility like we’ve seen recently, we are reminded of the basic principles of successful investing. Principles that hold true during all market cycles. Here are five principles our team follows:

1. Invest early.

Investing for a longer period of time is largely recognized as a more effective strategy than waiting until you have a large amount of savings or cash flow to invest. This is due to the power of compounding. Compounding investment returns is the snowball effect that occurs when your earnings generate even more earnings. Essentially, your investments grow not only on the original amount invested, but also on any accumulated interest, dividends and capital gains. The longer you are invested, the more time there is for your investment returns to compound. Time also enables you to take advantage of long-term historical market returns to effectively grow your portfolio over the long run.

2. Invest regularly. 

Investing often is just as important as investing early. A regular investment plan allows you to choose when and how often you make contributions to ensure that investing remains a priority throughout the year, not just during certain periods—like the IRA contribution deadline. This enables you to apply a disciplined savings approach to help successfully build wealth over time. Investing regularly also allows you the opportunity to ease into any type of market (rising, falling, flat) and help reduce long-term portfolio volatility. This is the case because investing a fixed dollar amount on a regular basis gives you a chance to buy more investment units when prices are low and fewer units when prices are high, thereby potentially reducing the average cost of your investment over the long term.

3. Invest enough.

Achieving your long-term financial goals begins with saving enough today. Saving for a major goal like a house, post-secondary education or retirement requires significant thought and decision making—but that is only half the battle. It is vital to know how much you need to begin saving today in order to have a large enough investment portfolio to support your future goal. Going through various questions, such as the ones listed below, will help you determine how much savings you will need to fund your goal.

•  What is your goal (e.g. retirement lifestyle, vacation house)?

•  How much will you need to attain your goal?

•  What savings do you currently have in place to meet your goal?

•  What is the time horizon required to reach your goal?

Our team helps clients answer these questions through the Wealth Planning process. Clients receive a customized Wealth Plan that confirms you are saving enough today.

4. Diversify your portfolio.

It’s important to spread your investments across different asset classes. When it comes to investing, one of the easiest ways that you can improve your probability of success is to take advantage of diversification opportunities through different asset classes, geographical markets and industries. Financial markets do not move in concert with one another. And at various points in the market cycle, different types of investments or asset classes—such as cash, fixed income and equities— will have varying performance. This performance varies because asset classes can respond differently to changes in environmental factors, including inflation, the outlook for corporate earnings and changes in interest rates. By holding a combination of different asset classes in your portfolio, you can take the guesswork out of predicting winning and losing investments in any given year.

5. Have a plan, and stick to your plan.

Don’t let your emotions influence your investment decisions. When market volatility increases, even experienced investors can become overly focused on short-term movements. This can lead to hasty decisions, chief among them timing the markets—investing after markets have already risen and redeeming existing investments after markets have already fallen. The key to avoid making rushed investment decisions is to maintain perspective and focus on the long term. With a well-structured plan in place, you can confidently remain committed to it, knowing that day-to-day market fluctuations are likely to have little impact on your longer-term objectives or on the investment strategy designed to get you there.

These principles may seem simple, but they’re not always easy. It’s our privilege to help clients put these principles into practice.


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