When just starting out and planning for our financial future, there are basic needs that must be taken care of before we can move on to the next level. Think of it just the same way that you would build a house. You can't build walls until you have a proper foundation.
Picture the below as if you're building a house. You must meet the 1st section before moving on to the next.
1. Risk Management
Before doing anything else, you need the basis of a strong foundation. This starts with the "insurances". Health, homeowners, car, disability, and term life insurance are the most common. If you don't have these, you shouldn't move on to the next level.
Many "people" will tell you 3 to 6 months of reserves. I prefer the 10/10/10 strategy that says that you should put 10% of your income into short term reserves, regardless of your income or current reserve amount.
Regardless of your position, your reserves must be accessible quickly. You don't really care how much interest you earn but you have to know that it WILL be there for you when you need it. Thus, you're looking at using checking & savings accounts, money market mutual funds, or cash value whole life insurance.
The stock market is sexy. I get it. However, wouldn't it be nice to have a medium to long term base that will earn 5 to 7% per year guaranteed with no risk? Take a look at fixed indexed annuities, indexed universal life, and whole life insurance.
With growth comes risk. You might be able to earn 10%, 20%, 30% or more in return on your money. However, you can also lose it in the same proportions. Too many people sock money away in the stock market without having a secure foundation. Not a good idea.
Once your foundation is secure and you have #2 and #3 in place, you can call the interior decorator. Now you can look at mutual funds, stocks, variable annuities, and variable life insurance.
5. High Risk
Options, Oil & Gas, Collectibles, commodities, precious metals, etc. Unless you have TONS of money already, don't go here. Come on and admit it, your mother lost a ton of money investing in Beanie Babies didn't she?
I hope this has helped you. The most important thing is to get started.
Please let me know if you have any additional questions. I'm happy to help.
| 08.24.15 @ 18:02