Many Americans are reluctant to invest in stocks after the financial crisis, which also shook their confidence in their ability to oversee their finances.
However, investors can take steps and develop useful habits to boost their confidence and make managing their finances a much less daunting task.
Covestor’s investment director Alexander MacAndrew, CFA, was recently interviewed by Main Street and offered tips on how individuals can invest with more confidence:
American consumers often don’t understand the benefits of saving regularly and starting early, said Alexander MacAndrew, an investment director at Covestor, an online investment management company with offices in London and Boston.
People should get into “sustainable” personal finance habits such as saving $3,000 per year for ten years during their twenties and allowing the proceeds to compound at 8%, he said. If an investor saved that amount until he turned 60, it would result in a greater total than saving $3,000 for the 30 years from age 30 to 60 at the same 8% investment rate.
“Compounding works in both directions,” MacAndrew said. “People are often amazed by the example when they see how much an investment portfolio can increase over time if returns are left to compound.”
The same strategy works for debt, he said.
“If an effort is not made to reduce debt, it can turn into a larger burden at an increasing rate,” MacAndrew said. “Taking action to reduce the overall debt and not just meet minimum payments should be the primary concern.”
Focusing on simply the return can create unnecessary risk, he said.
“Risk and return are highly related,” MacAndrew said. “If an investment or savings product appears to offer an exceptional return, make sure you understand the risks you are taking.”
Read the full article at Main Street.
Photo credit: Chris Potter at Flickr Creative Commons
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DISCLAIMER: The information in this material is not intended to be personalized financial advice and should not be solely relied on for making financial decisions. All investments involve risk, the amount of which may vary significantly. Past performance is no guarantee of future results.
