There are NO "Stupid" Questions
I recently came across a definition of financial literacy in Wikipedia that I believe sums up the term well. I’ll paraphrase: “It refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.”
- How do you manage money?
- How does one come up with financial goals and a plan to reach those financial goals?
- How do we make effective decisions with our financial resources?
These are easy questions that don’t command easy answers. You see, the financial arena is much more complex than it was 50 years ago. There is a downside to the proliferation of choices we have today. It adds a layer of complexity and creates confusion. Many don’t know where to begin. Many fall into paralysis by analysis.
One of my goals in my practice is to educate the investor. I know we cover various topics in our meetings, but I’ve learned that some folks feel uncomfortable about asking questions they perceive as too simple. Don’t we all?
Let me say this–there isn’t a bad question. I want you to be comfortable with what we recommend. I understand that you reach out to me for assistance with your finances, and I take that responsibility very seriously.
While the financial plans we advocate encompass basic principles, we do not take a cookie-cutter approach. Instead, we tailor our advice to your unique situation.
So, let’s review some of the assets we may recommend and briefly explain how they work.
Let’s begin with my favorite: stocks.
Investopedia defines a stock as “a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.” If the company pays a dividend, it provides you with income.
Stocks can rise and fall in value.
Next, bonds. When you purchase a bond, you are lending an entity money, usually the government or a corporation. For your cash, you will be paid interest, usually every six months.
The yield you receive is based on the credit risk of the firm. Bonds can rise or fall in value but are typically much less volatile than stocks.
The worst-case scenario with stocks or bonds–a company goes bankrupt and you lose your entire investment.
That’s one reason why we highly recommend you diversify so you are not putting all your eggs in one basket. Investing doesn’t eliminate risk, but it does spread out the risk, enabling you to earn a return that has historically exceeded the return on a bank savings account.
One way to diversify is to invest in what’s called exchange-traded funds (ETF’s) which have become quite popular in the last decade. Many have very low expenses and allow you to instantly diversify. Some are designed to mimic broad areas of the market, such as the S&P 500 Index. Others mimic an index that’s industry-specific, such as banking, health care, energy or housing. All ETF’s can rise or fall in value.
Space limits prevent a much more detailed survey of financial planning topics. Your needs may bend toward estate planning, retirement-income planning, insurance, charitable giving, college savings, and other areas. In fact, I dedicated substantial space to retirement-income planning and college savings in recent newsletters.
That said, let me reiterate. I’m just an email or phone call away if you have questions.
Every situation is unique, but there are fundamental financial principles that guide our recommendations.
Finally, let me repeat, there are no bad questions. What we don’t know canhurt us. And financial ignorance can be extremely costly.
Let’s talk if you have questions. That’s what I’m here for.
Assisting you in pursuit of your financial goals and shedding light on financial complexities provides our team with an enormous amount of satisfaction. Financial literacy is just one of the avenues that will help place you on the road to reaching your goals and dreams.
My job is to be your financial advisor and financial confidant. That is where I focus my energy. I’d be happy to discuss any questions you may have about your portfolio, your financial plan, or anything else that may be on your mind.
David R Henderson
This is being provided for informational purposes only, and should not be construed as a recommendation to buy or sell any particular securities. Investors should carefully read a Fund’s prospectus and consider the investment objectives, risks, charges and expenses before investing. There are risks associated with investing, including potential loss of principal. Past performance is no guarantee of future results. Investment advisory services offered through Mutual Advisors, LLC DBA DCH Wealth Management, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies.