Greece is going bankrupt! The Eurozone is crumbling! There are hippos and lions wandering the streets of Tbilisi! Well the thing about the hippos in Tbilisi is true, anyway. Apparently the zoo animals have all escaped during some devastating floods in the capital of the Eastern European nation of Georgia. As to the rest, well, it's all part of Europe's current worry that the Euro, the region's shared currency and 16-year-old experiment, won't survive. In Europe the news that Greece can't make the payments on its loans makes for great headlines. In the U.S., all this European frisson mostly turns up in our investment statements. It's one of the big reasons for that annoying little crawl your investment account has been doing over the past month (last week Golman Sachs declared that our markets were "boring").
To be fair, the niggling daily losses, gains, losses and regains aren't entirely Greece's fault. Our over-caffeinated stock market analysts are flipping coins about when the Federal Reserve is going to raise interest rates,too. But Greece does make a difference. Why? Unless you've been investing big in Greek canned peaches (one of their strongest exports), what you're really worried about is the domino effect within Europe and then, to the rest of us. [Note: I have included a nifty link here in case you would like to import some canned Greek peaches].
The European member created their fancy new currency back in 1999 to turn themselves into one big trading block. That means that they have given and taken out loans to one another, they sell their products—and their peaches—to one another, and their workers all rely on jobs that may well be in the next country over (in 2012 French candidates campaigned in London to reach their voters). This picture of unity works pretty well when times are good, but if country #1 doesn't pay back the loans from country #2, or even if its people can no longer buy those great country #2 imports, then country #2 starts to go down the economic drain. And since everyone is integrated with everyone else, that means country #3 starts to go, along with country #4, country #5, etc... You get the idea.
It turns out that as far away as Europe feels sometimes from the U.S., we do have an awful lot of our own economics tied up in it. And so do Asian countries, African countries and well, Australia. The dominos just keep falling.
So why does Greece matter? Because you don't need lions and floods and hippopotamuses to bring down an economic system. Sometimes knocking over a can of peaches will do it.
Let's say that you are one of the 53% of Americans who haven't invested in the stock market. You've decided it's time to start putting some money aside for the future, but you aren't sure how to get started. What do you need to know to become an investor?
First, don't assume that you need a lot of money to get going. An investor can start with a few dollars or with a few million. What makes you an investor is your willingness to risk your hard-earned cash with someone else in the hopes of getting more in return. For the purposes of this series, I am going to give you the basics of starting an investment account with publicly traded securities—that is, with stocks, bonds and other investments that anyone can buy with a few clicks of a mouse and that, correspondingly, you can sell just as easily. This week and next, I will be posting in more detail about what you need to be thinking about as you get going. Now, though, the basic steps...
1. Choose an investment strategy. Nothing will get an investor into trouble faster than going in without a strategy. Whether you plan to buy stock in your favorite company, invest with a fund manager, take control of your 401k plan or create a portfolio of index funds, you need to decide what your plan is before you invest the first dollar. Learn about some of the most popular strategies in this post.;
2. Choose your investments. That's right—before you open an account, make sure you understand both your strategy and which investments you'll use to put it into action. Just as your choice of strategies will help you eliminate financial advisors or stock brokers who don't make sense for you, your choice of investments will help you eliminate online brokers that charge more for the investments you need or that simply don't provide you with the right support. Not sure how to wade through the sea of investment options? We have upcoming posts on best options for funds, bonds, online platforms and research sources;
3. Opening an investment account. Whether you want help managing your investments or you want to go it alone, there are more choices than ever for opening an investment account. Registered Investment Advisors (RIA's), stockbrokers, online brokerage houses and online advisor platforms each offer you something different. Before you sign up, make sure you know what you are getting for your money and how the fees will work;
4. Follow your plan. Believe it or not, this is where most investors get caught. It's easy to get lost in the constant stream of stock market information. It is even easier to get lost in the busy pace of life. We often see new clients come to us for help who actually started a great investment plan. They simply lost track of it in the flurry of other concerns.
Ready? Let's get started.
If you have any questions about financial planning, investment management or any of the topics raised in this blog, feel free to contact Amy at Revolution Capital.