Are You A First Time Investor Who Feels Left Behind?

True Root Financial is a financial advisor and financial planner based in San Francisco, CA. We serve clients across the globe.

Meet Jan: A First Time Investor

Jan, a Berkeley graduate, started working as an engineer and gradually built up her savings. After losing money on tech stocks, she chose to keep her cash in a high-yield savings account to eventually buy a house in San Francisco.

Facing high housing costs in the San Francisco Bay Area and her love for flexibility and travel, Jan realized renting was better than buying. Her savings grew to nearly a million, but most of it sat idle, earning only a few thousand dollars a year despite some occasional angel investing.

The toll of indecision

All this time, Jan had this sick feeling in her stomach, believing she was missing out by not investing in the stock market. Hearing others’ success stories only added to her frustration, but she lacked the time and confidence to learn on her own. Eventually, she sought a financial advisor to help grow her net worth and achieve financial independence.

Though she started late, she made substantial progress and in a few short years, she is now well on her way to achieving the financial flexibility of living life on her own terms.

Jan’s story is an all too familiar a tale that we at True Root Financial hear from clients. Sometimes, it might be savings that sit idly. Or sometimes, it might be stock grants or shares acquired from an employee stock purchase program that sits unmanaged and potentially losing value over time. Or a 401k that’s left unmanaged.

Key Takeaways

Don’t let fear of losing money hold you back from investing
Having some emergency savings is wise, but many people keep too much idle cash, missing out on investment opportunities
Instead of keeping cash for catastrophes, manage those risks using the right insurance policy and asset protection strategies.

Does Jan’s story resonate with you?

If so, it might be because of one or more of these reasons:

The fear of losing money is often the biggest hurdle

Worrying about stock market volatility is common, but not investing guarantees losing money over time as the same amount of money you have today will be worth less and less over time as prices increase. While markets can dip short-term, they typically reward long-term, especially if you’re diversified investors who manage risks well.

Saving for a large purchase in the future

Another reason for many people is that they’re keeping it aside for a large purchase such as a house in the next 3-5 years but they actually never end up using all that they set aside because they have an income they can tap from.

Over-saving for emergencies

Emergencies can occur such as if you lose your job but these are temporary. For someone like Jan, she would be able to find a job within 2-3 months. So, for her, her emergency fund should be no more than strict living expenses for 2-3 months. However, many people end up putting too much aside for emergencies and in the process end up losing the opportunity to grow the money.

Instead of saving too much for emergencies, see if you can maintain a balance between the two:

– Quick access to funds in an emergency and,

– Growing the value of your money by investing

Keeping a cash cushion for catastrophes

Some also think that having lots of cash would help their family should something happen to them like death or an accident. However, these are the very events you should get adequate insurance for like life and disability insurance, not save cash for.

Not knowing where to look for reliable financial advice

You may be wary of financial advisors due to concerns about fees, conflicts of interest, or past negative experiences. This mistrust can prevent you from seeking the help you need to start investing confidently.

Do you believe everyone who invests is an expert?

Fortunately, you have the option to seek guidance from a financial advisor. It can be difficult to take the first step, especially if you feel overwhelmed by the process. The idea of researching investments, understanding financial markets, and making decisions can seem daunting. The only solution is to take help from a financial advisor.

About 82 percent of new investors said they are interested in speaking with a financial advisor to offer assistance, according to a 2021 Schwab survey.

Lastly, inertia and procrastination…

This usually happens when you have one of the above issues but also your rational mind is telling you to act. However, instead of facing the cognitive dissonance and making a decision to move forward, it’s often easier to just procrastinate and do nothing, which is a terrible decision.

Start Investing Early

Source: Ally

So, what does this imply? Historically (from 1950 to 2023), staying invested in the S&P 500 for fifteen years has consistently yielded some returns on your investments. While this doesn’t assure future outcomes, it’s a valuable consideration when shaping your investment approach.

The Cost of Not Investing: Money Has No Store Value!

1. Lost Time and Compound Interest

One of the biggest costs of not investing is the loss of time. Time is a crucial factor in investing because of the power of compound interest. For example, investing $10,000 at a 7% annual return grows to over $76,000 in 30 years. If you wait 10 years to start, that same investment only grows to about $38,000 in 20 years. The earlier you start, the more time your money has to grow exponentially.

2. Missed Financial Goals

Many of our clients have a goal of achieving financial independence early in life so that they have the flexibility to live life on their own terms. A crucial component of achieving this goal is investing wisely. Saving alone will never solve this goal because not only does the same amount of money buy less and less over time but also as we age, our healthcare and other non-discretionary expenses go up dramatically.

Bottom Line

As time goes, you might have less and less energy to work long hours to make lots of money. Whether it’s buying a house, funding your children’s education, or building a comfortable retirement fund, starting late means you have less time to accumulate the necessary funds. This can lead to stress and anxiety about the future, as you realize you might not be able to achieve the lifestyle you envisioned.

3. Inflation

Another cost of not investing is the impact of inflation. If you keep your savings in a regular bank account with minimal interest, the value of your money will decrease as prices rise. Investing helps you stay ahead of inflation by growing your money at a rate that outpaces the increase in the cost of living.

4. Opportunity Cost

There is also an opportunity cost to consider. The money you don’t invest could have been used to take advantage of various investment opportunities. This means you miss out on potential gains that could have improved your financial situation. Over time, these missed opportunities can add up, leaving you with significantly less wealth than if you had started investing earlier but do not make the same mistake, start now.

4 Step Guide For The First Time Investor

Step 1: Decide how much to invest

Step 2: Keep some cash for emergencies but not too much

Step 3: Find an investment mix that balances growth and risks

Step 4: Find a financial advisor who can help you with investing and financial planning

Where Can You Start as a 2024 investor?

The first step is to set clear financial goals. Determine what you want to achieve with your investments. If you want to be financially independent, understand how much you’ll need to pay for all your living expenses plus other goals and obligations you might have like sending kids to college, buying a first or second property or caring for an elderly parent. This means you will need to know your cash flows from now until the end of life.

Another thing you need to do is to minimize your taxes and proactively manage events that might trigger large tax payments like when your stocks vest or when you exercise your stock options. You will also need to understand which tax advantaged vehicles are right for you such as a 401(k) or a Roth 401(k), 529 plans for your children and also HSA for healthcare planning.

At True Root Financial, we help our clients think through their goals and plan for financial independence:

Through a series of five meetings, we will help you envision your ideal life and create a roadmap to achieve it.
We will provide a personalized written financial plan that outlines this vision and the steps necessary to realize it.
We will implement each action item and adjust the plan as your circumstances change.
You will have full access to our investment management services as part of this offering.
Each year will begin with an annual review meeting, supplemented by other meetings based on your needs.
You will have continuous one-on-one access to your planner via email, phone, and meetings for any questions.
Additionally, you will get secure online access to all your accounts.
You can cancel the service at any time without any commitments or lock-ins.

We provide knowledge and create a portfolio diversified across many investments, which are not interdependent, reducing the risk of loss.

Here’s The Next Step For You

Avoid the hassle of navigating investments on your own. Get professional help to craft a tax-efficient plan and start your journey as a first time investor towards financial security today. Book a call below with True Root Financial to find the right investment strategy.