Here is the “Your Money Matters” section of the latest PCC Scroll.
There is an old saying that goes, “Don’t put all of your eggs in one basket.” This adage is especially true when it comes to managing your money. If you concentrate all of your investments and planning in one area, you could lose substantially. That’s why it’s important to diversify your portfolio.
When it comes to financial planning, diversification is critical to mitigating risks. This could be done by diversifying your investments in stocks (U.S. and foreign), bonds, mutual funds, etc., while having liquid cash. It also means diversifying risk levels (high, moderate, and low), investment types (large cap and small cap), and market sectors. Some people also invest in real estate or rent out space(s) in their home on sites like Airbnb.
Stocks are more volatile than bonds with the potential for high growth and high loss. Historically speaking, the market seems to run on a ten-year, up-and-down cycle. Bonds are shorter-term investments with less risk. But with their stability, there is also less growth. Stocks may be better for long-term investments, and bonds may be better for short-term investments. And of course, cash is always good to have in an emergency. If you are considering investing in real estate, remember you will need to monetarily plan for vacancies and repairs (planned and unplanned).
While you are diversifying your portfolio, you can also diversify your income stream. Outside of your “9 to 5” job, you could use your skillset, time, and hobbies to earn additional income. Some examples include: babysitting, tutoring, consulting/coaching, writing, singing lessons, piano lessons, social media management, resume/grant writing, etc. I met a woman who started making candles for herself and her friends and family as a hobby. She now spends her weekends selling them at farmers’ markets as an income generator. I have also met several people who sell their travel photos at farmers’ markets. People also sell their pictures as stock photos and make royalties. This is actually something I want to explore. You could also drive for Uber, Lyft, and UberEats whenever convenient for your schedule. A lot of people will also pick up seasonal, part-time work, especially during the holidays. If you are eligible for overtime pay, picking up extra hours is also a good option. I recently stayed at an Airbnb, and my host only does it when she needs extra cash for a large purchase.
It is important to know where you are financially and where you want to go. When developing your portfolio, think about your investment goals. Think about your risk tolerance. Consider where you are in your timeline. For example, if you are planning for retirement, are you less than ten years away? If so, stay away from high-risk investments.
As we start a new year, it is always a good time to reset your finances. How much money do you currently have invested? Can you invest more? Look at where your money is currently invested and reallocate it if necessary. Think about the end game. How much money are you looking to earn over how many years? Also does your job offer a 401 match? If so, you should take advantage of this benefit! If you are risk adverse, why not use your employer match funds to invest in higher-risk stocks?
Invest in a financial planner if you need help. A good financial planner can help you create the financial future you desire. When looking for an advisor, make sure it is someone you can trust and seek recommendations. If you do go the advisor route, understand what fees you will pay. The bottom line is knowing yourself. If you have the discipline to do the research and monitor your accounts, do so. Otherwise, seek professional help.
Whatever you do, conduct your own research and keep a balanced portfolio.