Finances tend to be the largest concern for young professionals today. While it can be difficult to save and invest money in the first few years out of school, the earlier you start saving, the better off you will be in the future. It’s important to understand some of the basics when it comes to investing.
1. Goal Planning
Take a goal-based approach to wealth management. Your first step should be to look at your investment goals and map out a plan to achieve them. Your investment portfolio should be designed based on your age, income and the amount of investable assets you have. You can always adjust your risk level and make your own selection. Usually, increasing your savings rate and extending the time until you need the money for your goal will have a greater impact on your odds of success than taking more risk.
Diversification is spreading your investment over many different asset classes, business sectors, industries, companies and even countries. Investing has many risks, but most risks do not impact all asset classes in the same way. Diversifying your assets is generally less risky than concentrating your money in one asset or asset class. Instead of choosing a few companies to invest in, consider using exchange-traded funds (ETFs) — similar to mutual funds but traded like stocks — to spread your investment over thousands of individual assets. Essentially, this reduces the impact on your wealth of any one firm going bad. It’s definitely not risk-free, but if you had a finance professor, it’s the approach they would probably recommend.
3. Portfolio Selection
There are many ways to build a portfolio of stocks and bonds. Most approaches fall into one of two categories: passive or active. Passive investing picks a benchmark index and mirrors it. An ETF made up of all the stocks in the S&P 500 index is an example. Active investing involves making decisions that differ from the benchmark index. A mutual fund that picks what it thinks are the 10 best stocks from anywhere in the world, or one that might overweight Europe at the expense of Japan are examples of active investing.
Rebalancing means adjusting the mix of assets in your portfolio to keep it in line with the target portfolio you chose based on your risk-tolerance. Say, for example, your preferred portfolio had 70 percent stocks and 30 percent bonds, and the stocks went up over time so they now make up 80 percent of the value of your portfolio. Rebalancing means selling some of the stocks and buying more bonds until you are back to the 70/30 split that you chose. Regular rebalancing tends to help you buy low and sell high because you’re selling some of the assets that have increased in value and buying those that have gone down or increased less.
SoFi uses technology to actively manage passive assets and curate a diversified portfolio. It’s a modern approach based on tested principles for the smart investor. The SoFI wealth product is based on these four principles, which are critical to understand before you start investing as well.
ASDA has partnered with SoFi to bring members the opportunity to start investing at SoFi.com/ASDA. Members and their families who open a wealth account through SoFi.com/ASDA are eligible to receive a $100 welcome bonus upon opening a wealth account.
This content is sponsored and does not necessarily reflect the views of ASDA.
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