5 Pieces of Investment Advice for Real People
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What is investment advice?
Investment advice is professional guidance that informs consumers on financial matters or products. Investment advice shouldn’t be given — or taken — lightly, and if a single piece of information were the best fit for everyone, we’d all be Warren Buffett rich by now.
Only registered investment advisors can legally give investment advice — they are registered with either the U.S. Securities and Exchange Commission or their state’s securities regulator. Need investment advice from a specialist? Jump to online financial planning services.
Absent magic advice that applies to everyone, there are still some general rules of thumb. We asked financial advisors to share their best investment advice. Here’s what they had to say.
5 pieces of investment advice from the pros
1. Take advantage of employer-matching dollars
“Don’t ever leave free money on the table in the form of employer matching with 401(k) or 403(b) accounts. This is repeated often, but it’s true.”
— Robert Stromberg, a certified financial planner and founder of Mountain River Financial in Jenkintown, Pennsylvania
Many companies match an employee’s contributions to their employer-sponsored retirement plan, up to a cap. Let’s say your employer matches 100% of your 401(k) contributions on up to 4% of your salary and you earn $50,000 a year. If you contribute 4% of your salary this year — $2,000 — your company will also kick in $2,000, making your annual contribution $4,000. Missing out on an employer’s match is essentially forfeiting free money.
» Want to learn more? Read about how much you should contribute to your 401(k).
2. The sooner you start, the better
“Start early. If you don't know the power of compounding returns, learn it, because it will make you excited about your future.”
— Tara Unverzagt, CFP and founder of South Bay Financial Partners in Torrance, California
Investing allows your money to grow instead of sitting idle. When you invest, any returns you earn are added to your balance, and future returns are then based on that bigger balance. For example, if you invested $10,000 and earned a 6% average annual return on your investment, you’d have over $18,000 after 10 years. Give that money 30 years to grow instead and you’d have over $60,000.
The earlier you start investing, the more time your money has to accumulate wealth. Use our compound interest calculator to see how much your investment could grow over time.
3. Create a financial plan
“Have a plan. Period. If you can plan yourself, great. If you need to hire someone to hold you accountable, great. Financial planning is not just for retirees. I would argue it’s more important early in your life and career. ”
— Taylor S. Venanzi, CFP and founder of Activate Wealth, LLC in Philadelphia, Pennsylvania
Choosing investments can feel overwhelming — even deciding what kind of investment account to use can be complex. Doing some financial planning upfront creates a roadmap for your financial future. By outlining your financial goals, your timeline and your risk tolerance, you make it easier to answer some of those tricky investment questions.
Part of your financial plan should include whether you’re willing to manage your investments yourself or if you want help. Financial planning can be expensive, but options like robo-advisors and online financial planning services have driven costs down. Some robo-advisors offer investment management for as little as 0.25% of your account balance.
» Need help? Learn how to choose a financial advisor
4. Don’t try to predict the market
“The temptation to pick out certain sectors in the market can be strong. It's better to get into diversified, low-cost funds.”
— Wakefield Hare, CFP and founder of Greater Than Financial in Kansas City, Missouri
Even for a professional, attempting to predict the market is challenging. Doing so with an elementary understanding is extremely risky.
Instead of investing in a single stock or industry, a total-market index fund will give you exposure to multiple stocks, which helps diversify your portfolio and lowers your risk. Since index funds are passively managed — they track a benchmark index, like the S&P 500 — fees tend to be lower than actively managed funds.
5. Take the long view
“Clients have to take emotions out of investing and really tune out the noise. With social media and a 24-hour news cycle, clients are getting hit with headlines from all sides all the time — and some of them are specifically designed to scare people.”
— Joseph Weber, founder of Integrated Financial Solutions in Tempe, Arizona
Thinking about your investments as a marathon instead of a sprint can help stymie your urge to sell if the market takes a turn for the worse. Even massive dips in the market don’t feel as scary if you plan to stay invested long-term, because you have time to recover.
As a general rule, money you need in less than five years shouldn’t be invested in the stock market — for short-term goals, you should consider putting it in an online high-yield savings account instead.
Where to get investment advice
Good investment advice can save you time and money in the long run. Here are some of the best places to find it.
Free resources: While you may not be able to get free, personalized investment advice, there are tons of excellent resources for cheap or free financial advice. For example, many banks and brokerage firms offer educational content on their websites.
Robo-advisors: Robo-advisors use algorithms based on your risk tolerance and financial goals to create and manage an investment portfolio for you. If you want to outsource investment management, robo-advisors are an inexpensive and easy option. Here are some of the top rated robo-advisors. You can also read a full list of the best robo-advisors.
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Online financial planning services: If you’d like the expertise of a human advisor with a digital price tag, online financial planning services may be what you’re looking for. In addition to managing your investments, these services can help with more complicated financial topics like holistic financial planning or estate planning.
Take a look at a few of the best online financial planning services, or read our full roundup of the best online financial advisors.
Traditional local financial advisors: Meeting with a financial advisor face to face has its benefits. While traditional advisors can be pricier than robo-advisors or online financial planning services, they can be helpful if you have a complicated financial situation or want a deeper relationship with the person who is handling your money. There are several types of financial advisors, so be sure to find one with the credentials that will suit your needs.
» How much will it cost? Get the details on financial advisor fees.