It amazes me how many people who are otherwise very intelligent don’t have a professional helping them with their finances. We see professionals for health reasons and to get our hair colored.. Why not something that will literally impact you for the rest of your life?
I met Jordan Smith a few months ago when I decided to switch away from a financial planner I’d been working with for a while, and we immediately clicked. When I asked him if I could do a Q&A for a post, he was excited to share the good news of financial responsibility with the World Wide Web and I hope you find it as helpful as I did.
If you’re local to D.C., email me or just Google “Jordan L. Smith Bethesda” to be connected with him. I can’t speak highly enough about him, but I’m sure his words below will help to convey that to you too. Enjoy! Many thanks to Jordan for sharing your wisdom!
What misconceptions do you often see when it comes to investing?
Great question. I often see a one-size-fits-all approach to investing. What I mean by that is, investing solely in a passive index fund – a mutual fund that mimics the S&P500 – isn’t right for everyone. We all have different needs, and some of us have a stronger aversion to risk than others, so to use the same investment strategy as your parents or even your friends could be holding you back from meeting your goals.
Is it important to invest apart from your 401k? Why or why not?
Well, it depends on what your goals are. If your only savings goal is retirement, which is rarely the case, then you may want to max out your 401k contributions before saving elsewhere. If you have other goals, such as saving for a home, your child’s college tuition, or simply building your rainy day fund, then setting up separate investment accounts with varying levels of risk could help you better achieve those goals. Again, one size does not fit all.
I often hear people, particularly women, say that they’re afraid of the risk involved in investing. What would you say to that?
I find that women have a better sense of investing acumen than they are often given credit for. In this world, risk is inevitable, and investing is no different; however, I’ve found that women tend to understand the relationship between risk and reward much easier than men. My female clients want to know one thing: Is the level of risk being taken appropriate enough to achieve their goals? Should they take more, or can they take less and still accomplish the same objective? I don’t believe that women are any more risk averse than men, it’s just that no one has ever taken the time to explain why some risks are appropriate.
Are we on the verge of a recession?
Ahh, the trillion dollar question, quite literally. Most of us remember the Great Recession, which is often equated to what a recession looks like, but I assure you it is not. A recession, at some point in the near future, is inevitable. It’s actually healthy. It allows the economy to cool down, reconfigure itself, and grow in a new direction. I do not believe our next recession will be anything like the last, but it will be a slowdown that could affect some of your readers; however most of them may not even feel it. That being said, don’t wait for a crash in order to invest. Have a systematic approach to investing over time. Believe me, in 30 years you won’t even remember that this was a concern.
Explain what a money market account is. Can it be seen as an emergency fund of sorts? Why or why not?
A money market (MMKT) account is essentially a high interest savings account. MMKT rates fluctuate with overall market interest rates, but they are almost always higher than your average savings account. Keep in mind, there are other inherent risks that are specific to MMKT accounts, which you should ask your bank or advisor more about.
To begin saving, you can use your local bank’s MMKT account or you can work with a broker to get access to better MMKT accounts. Either way, it’s a great place to keep emergency savings. Typically, a minimum balance is required, and that varies from account to account. If my clients are looking to invest for less than a year, this is where we will put their cash. Once your 3-6 month cash reserve is satisfied, you should begin looking for better investment options. MMKT accounts are not ideal for long term savings.
How should someone get started with investing?
If you are a typical do-it-yourselfer, there is plenty of material out there to read. One of my favorite books, old but still quite relevant, is “One Up on Wall Street” by Peter Lynch. It’s easy to understand and provides a nice foundation for the beginner investor. If you prefer professional advice and would like to learn as you go, then speak with an advisor you can trust. Let them know that you are interested in learning more about your investments, or investing in general. Whatever you do, don’t put up with anyone who is condescending or dictates direction “in your best interest.” Remember, this is your money, be empowered by it, learn from it, and put it to work for you and your family.