Back to the Basics | Investing

Jacob S. Bierstedt, CFP®, ChFC®

May 25, 2023

Today is the fifth in the Back to the Basics series. We covered insurance two weeks ago, and before that, we covered savings, budgeting, and debt management. Investing and retirement planning are the topics we still need to address. As you are finding out, these subjects are all connected. If you are in debt, you can't save, and a budget helps you control your spending so you can save. If you save, you have the funds to purchase life insurance and have an emergency fund. You can then start funding your retirement by investing in a company-sponsored plan, such as a 401(k), or work with the Dixon Financial Group, LLC LPL Financial Advisors, who are CERTIFIED FINANCIAL PLANNER™ professionals.

By now, you have identified your debt, created a budget, have the fundamentals of saving, and have freed up funds to purchase insurance to protect you and your family. Investing your money is investing in your future, and for most, retirement is the goal. Read on to learn more about how investing fits into this picture.

How Investing Works

Investing is the process of putting your money into something with the expectation of getting a return. This return can come in the form of:

Capital gains: When the value of your investment goes up, you can sell it for a profit.
Dividends: Some investments, such as stocks, pay out dividends to their shareholders. Dividends are a portion of the company's profits distributed to shareholders. *Our advisors recommend reinvesting the dividends, which in turn, helps grow the value of your portfolio.
Interest: Some investments, such as bonds, pay interest to their holders. Interest is a fixed amount of money paid to the bondholder, typically on a regular basis.

There are many types of investments, each with risks and rewards. Some common types of investments include:

Stocks: Stocks represent ownership in a company. When you buy a stock, you buy a small piece of the company. Stocks can be volatile, meaning their prices can fluctuate quickly.
Bonds: Bonds are loans that you make to a company or government. Bonds typically pay a fixed interest rate and are considered safer investments than stocks.
Mutual funds: Mutual funds are baskets of investments managed by a professional. Mutual funds can be an excellent way to diversify your portfolio and reduce risk.
Exchange-traded funds (ETFs): ETFs are similar to mutual funds but trade like stocks. ETFs can be a good way to invest in a particular asset class, such as stocks or bonds, without buying individual stocks or bonds.

Why Investing Is Important

Investing is essential for several reasons:

It can help you grow your wealth. Over time, your investments can grow and provide you with a source of income in retirement.
Investing can help you diversify your income. If you have all of your money tied up in your job, you are at risk of losing everything if you lose your job. By investing, you can spread your money out over various assets, which can help reduce your risk.
Investing can help you achieve your financial goals.

If you are aiming to buy a house, retire early, or send your children to college, investing can help you save up for those goals. If you are new to investing, it is a good idea to work with a CERTIFIED FINANCIAL PLANNER™ professional. Our CFP® professionals can help you create a financial plan that meets your needs and goals. We can also help you choose suitable investments for your portfolio and manage your risk.

Working with a Dixon Financial Group, LLC CFP® professional is a wise investment. We can help you save time, money, and stress, and we can also help to you avoid costly mistakes. If you are serious about investing, we encourage you to work with our CFP® professionals.

*We hope the topics of debt management, budgeting, saving, insurance, and investing have been helpful; next week, we will discuss retirement planning. Please help your family and friends by sharing this information.

David S. Dixon, CFP®

Jacob S. Bierstedt, CFP®, ChFC