Investing Basics for Millennials

investing for beginners

As the average college student graduates with around $30,000 in debt, it can be hard for young adults to even think about using any of their income to invest. Even for those who did not go to college, most working Americans are living paycheck to paycheck. In fact, the latest Merrill Edge Report found that 66% of millennials would rather put their money in a savings account instead of investments or a retirement plan. For many millennials, it can be confusing or scary to entrust their financial security into the hands of others. The good news is, investing doesn’t have to be scary or difficult. Here, we explore a few ways beginners can start investing in themselves and their financial futures.

Why invest in the first place?

Put simply, the number one reason to invest is to create wealth. Smart investing is the best way to increase the power of your financial resources. Investing can make it possible for you to achieve your financial goals, start a college fund for your kids, establish a legacy, or even just create a safety net for retirement. If you think you don’t have enough money to invest, think again. There is no one-size-fits-all investment plan. While most financial planners suggest investing 10% of your income, investing what you can is better than not investing at all. A small initial investment when you’re young can have a big long-term impact.

There are many different ways to invest, but the most common forms of investment are the ones you can choose as part of a brokerage account or through your retirement plan at work. These generally include:

 

Stocks
Stocks are a partial ownership of one or more companies. If a company does well, the value of their stock increases—along with the return on your investment. While more prone to sudden and sometimes drastic changes, stocks have a high return potential over longer periods of time.

 

Bonds
Bonds are fixed income investments designed to create a consistent stream of income. The values of bonds are vulnerable to interest rate fluctuations, but they are considered to be more stable than stocks, despite having a lower return potential.

 

Cash
This doesn’t just mean physical cash. It also includes investments like savings accounts, artwork, or collectibles. Cash investments tend to be the lowest risk, but they also have the lowest return on investment.

 

Mutual Funds and ETFs
These funds invest money pooled from many investors in an array of stocks, bonds, and other investments.

 

Your personal investment portfolio will be different than any one else’s portfolio. Part of learning how to invest is learning how to make the best decisions for your own financial future. Still, there are some basic rules to help you start making smart investment choices.

The biggest rule in investments is to create a diverse investment portfolio. Diversification can help you ride any potential losses. Even if one of your investments takes a hit, you will be able to rely on your other investments to make up for the loss.

Another important rule of thumb is to invest in what you believe in. Don’t let others do your research for you. If you don’t know or understand what you’re buying, don’t buy it! Do your own research to figure out which investments will be the most profitable for you. After all, no one cares more about your money than you. Be patient with your investments and only invest in what you can afford. If you invest what you reasonably can and give your investments time to mature and grow, you will see some great returns.

Creating wealth through investing involves a lot of research and evaluating different kinds of investments. Once you feel comfortable with the basics, you can come up with a game plan for your financial future. Even with limited funds, making steps towards investing can dramatically affect your financial future. Investing will get easier the longer you do it; all you have to do is get started.

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When to Break Up With Your Financial Advisor

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An important indicator of your overall financial wellness is how well you balance spending with saving and investing. You should always keep the end game (retirement) in view while simultaneously being able to enjoy life while saving for your children’s college education, if applicable. In order to coordinate all of the pieces of your financial puzzle most effectively, many people choose to work with a financial advisor.

Unlike many other professional partnerships you may form, your relationship with your financial advisor or financial planner can become more like a friendship. Because many people stay with the same financial planner for years, you can easily feel connected on more than a professional level. This feeling increases if you are also in the same circle of friends or live in the same town.

No matter how much you enjoy the company of your financial planner, if your needs simply aren’t being met, you have some decisions to make. You’ll either have to explain to your advisor exactly how he’s letting you down and what he can change to retain your business, or you can start looking around for someone new.

Reasons to consider leaving your financial planner:

  • Distrust – Being able to trust your financial advisor with your money is extremely important. If you’re asking questions and not getting answers that feel authentic, that’s a red flag.
  • Poor communication – While it’s true that financial planners are often very busy, if your phone calls and emails go unanswered for lengthy time periods, you’re paying for a service that’s sub-par.
  • Unclear expectations – The best financial advisors will lay out a plan when you first team up with them. The plan should include input from you regarding your specific goals for your assets and what you’d like to see happen. If your advisor never created an investment policy statement for you – it could signal that he’s skimping on his other duties as well.
  • No contract – As with any professional who provides you with a service that you will be paying for, your financial planner should present you with a clear contract at the beginning of your relationship that outlines his duties to you and what he needs from you as well. Without a contract, you have no way of knowing what to expect.
  • Distance – If you’ve been working with a financial advisor from afar and have recently decided to take a more active role in your finances, letting go may be your only option.
  • No fiduciary standard of care – In other words, if your advisor (or his firm) doesn’t put your interests ahead of their own, you have a very good reason for finding a new firm.
  • Fees – If you’re currently unhappy with your advisor’s fee structure and this is set by his firm, you may not be able to get the arrangement you’re looking for without finding someone new.
  • Additional services – Many people today are interested in working with a financial advisor who goes above and beyond making sound investments for them. Tax planning and basic budgeting advice are two services cited by clients who were unhappy with their current financial planning firm.

At Veitengruber Law, we pride ourselves on our vast network of professionals and we attend networking meetings every month to stay immersed in the financial, legal and real estate markets. We are more than happy to assist you in finding the NJ financial advisor that meets your needs. Give us a quick call [(732) 852-7295], or fill out the contact request form on our website. We’re always here to help!

Image credit: Nicolas Raymond

Buying a NJ Foreclosure Property: The Risks

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As we know first-hand here at Veitengruber Law, there are currently an abundance of foreclosed homes in New Jersey. In our practice, we typically represent the homeowner who has been foreclosed upon. Sometimes we help homeowners keep their homes out of foreclosure (foreclosure defense), while other times we walk them through the foreclosure steps (usually combined with a bankruptcy).

The fact that New Jersey has so many properties in foreclosure (although the numbers do appear to be slowing down, albeit very gradually) means that these homes are or will soon be available for purchase at Sheriff’s Sale.

Along with assisting clients who are dealing with foreclosed homes, we also approach things from the other end for those who are interested in purchasing foreclosure properties.

Whether for investment purposes or to simply get a great deal on a future residence, more and more New Jerseyans are realizing the potential that our state’s mass amount of foreclosures represent. For example, a foreclosed NJ property that sold for $1.3 million in 2006 may go for $300,000 at Sheriff’s Sale.* Simply looking at the numbers makes buying a foreclosure property look like a slam dunk.

If everything works out in your favor, buying a foreclosed home certainly can be a fantastic way to get a great house at a fraction of its original market value. With that being said, there are a number of things that you need to be aware of before setting one toe into the foreclosure arena.

The ‘perfect’ house can slip through your fingers at any time. As we work directly with homeowners whose homes are in foreclosure, we can tell you that a homeowner can stop the foreclosure process in the blink of an eye by taking one single action: filing for bankruptcy. If this happens, you may have invested a lot of time and longing into a home that suddenly becomes unavailable.

Even if you buy a home at Sheriff’s Sale auction, make your required down payment (20% of the price you agreed to pay for the home), the original homeowner still has the opportunity to pull off a miracle and decide to keep the home by bringing the mortgage current. They have 10 days following the sale of the home to do so, which is referred to as ‘redemption.’ While redemption is a rarity, you still need to be aware that it is a possibility.

If the original homeowners do not use the redemption period to redeem the home, the IRS has the right to take ownership of any foreclosed properties on which there is an existing federal tax lien. The IRS can take up to 4 months to decide whether or not to redeem a foreclosed property.

Foreclosure properties are sold ‘as-is.’ If you purchase a home at a NJ Sheriff’s Sale, you’ll agree to take ownership of the property without having any opportunity to do a proper walk-through or appraisal.

The unfortunate truth is that owners who couldn’t keep up with their mortgage payments most likely weren’t keeping up with home maintenance or repairs either. There may be significant problems for you to discover only after you’ve signed your name to the property.

Tens of thousands, or even hundreds of thousands of dollars in repairs may be necessary, depending on the size and scope of the home in question.  Whether you plan to rent the home for additional income or live in it, costly repairs will delay both, and could have you actually spending more money than if you’d purchased a non-foreclosure home.

Most importantly, if you still wish to enter into the process of buying a foreclosure property, you need a professional by your side, especially if this is your first experience with foreclosed real estate.

Image credit: Richard Elzey

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