Once you have determined your investment strategy by identifying your time horizon, goals, risk tolerance, existing knowledge and how you want to be involved with your investments — you can get into action.
There are many paths you can take when it comes to actually investing your money. Here are some options and what kind of investment strategy they’re best suited for.
Go the DIY Route
If you have the time, energy and decision-making capabilities, the DIY route might work for you. This method can save you a lot of money in fees, which means more of a return for you.
Many people enjoy playing the stock market, but it’s important to build a firm foundation of knowledge before going solo. There are lots of books that can help you gain understanding and confidence, including DIY Financial Advisor by Wesley R. Gray, Jack R. Vogel and David P. Foulke. It’s just as important to know what not to do, so make sure you understand common investment traps.
Get Technical With Robo-Advisors
Robo-advisors are tech platforms that automatically invest, rebalance and tax-loss harvest your money for you. Robos make decisions about what to do via algorithms based on economic theories and research from investment experts.
Robo companies include Betterment, Personal Capital and Wealthfront. Think of these as a middle ground between managing your investments entirely on your own and hiring a full-time, personal financial advisor or investment manager.
Robo-advisors provide a cheaper way to invest while giving you some of the same benefits you get with a human advisor: “Someone” else is managing your investments for the most part, so you don’t need to worry about them.
Hire a Fee-Only Financial Advisor
Robo-advisors are great tool to use as part of your investment strategy if you don’t want to be completely on your own and your goals are pretty straightforward.
But if you need additional support, have a complex financial situation or want an investment strategy and plan specifically tailored to your exact needs, you might want to hire a financial advisor.
The Wall Street Journal provides guidance on finding the right financial advisor. Remember that you want someone who is:
- Fee-only: These advisors receive payment for their work directly and exclusively from you. (Fee-based or commission advisors can earn money from other sources, like mutual fund companies, if they get you to invest in a particular product. Their advice may be biased because they’re financially incentivized to offer certain products, regardless of your specific needs.)
- Fiduciary: Advisors held to a fiduciary standard are legally required to act in your best interest at all times. (No, not all advisors are required to do this!) Some are held to a “suitability” standard, meaning they need to offer you a product that’s suitable — not necessarily the best option for you.
A financial advisor is a trained, educated, objective third party who can create an investment strategy for you — and, more importantly, keep you accountable to following through with that plan.
At the end of the day, the best strategy is the one that lines up with your needs and goals. And, remember, you can always pivot. If you find your strategy isn’t working for you, don’t feel stuck with it: Reevaluate and try again!