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Solopreneur Money

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Back to Basics #9 – Investment Portfolio, Ep #149

You probably have an investment portfolio, but have you really thought about the way it is invested? In this episode of Solopreneur Money, we’re going back to basics as we explore how to invest. You’ll learn the three Ps of investing with some simple comparisons that will help you visualize the mechanics of investing so that you can sit back and watch your money grow over time.

You will want to hear this episode if you are interested in…

  • The purpose of your money [2:32]
  • The process you use to invest [5:19]
  • Understanding diversification [8:02]
  • How an investment portfolio is like a cookie jar [14:56]
  • Comparing investment types to high school kids [19:32]
  • Your call to action [25:21]

Consider the purpose of your money before investing

Your portfolio is not your investment plan. It is only part of the plan. Before investing, you need to consider the three Ps: purpose, process, and privacy.

Investments are the pieces that are inside your accounts. Typically when we think of investments we think about long-term investing, but that might not be the case with every account you have. When deciding what you to do with your money you need to consider the purpose of those funds. What will you use this money for? Retirement? College education? A lake house? A trip around the world?

Make sure you have an investing process

After understanding the purpose of your investments then you can consider your process.

The longer the time horizon the more aggressively you can invest the money. If you plan on using the money in the short term it may not be a good idea to invest. You might want to keep that money in cash.

Next, you’ll want to consider your risk tolerance. On a scale of 1-10, how much risk can you handle? Consider your comfort level and make sure that you can sleep at night without worrying about what is happening with your money.

Diversification will help protect your portfolio

Once you consider this you can think of the investment vehicles to use. You’ll want to ensure that your investments are diversified. You don’t want to keep all of your eggs in one basket. Having your investments be a mix of stocks, bonds, and cash is only part of that diversification.

Most people choose to invest by using ETFs or mutual funds. Mutual funds and ETFs have the same concept in that they are both a diversified group of securities. They both contain a basket of various stocks. However, mutual funds can only be sold at the end-of-day selling price whereas ETFs can be sold throughout the day.

Bonds are different than stocks in that they are loans. With a bond, you are acting like a banker that lends money to a corporation and they pay you back with interest over time. Bonds are less risky and provide a small, steady stream of income.

To really help people understand investments I like to compare them to a cookie jar and high school kids. Want to hear how? Listen in to discover what investing has to do with cookie jars and high school kids.

It’s time for you to get to work. Sit down and study your account statements so that you can get an understanding of your actual diversification level by learning where your money is really invested. Think through your process, your purpose, and your privacy. Is your money doing what it should be doing for you?

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