Investing 101: How to Create an Investment Strategy

Investing 101

How to Create an Investment Strategy

By Levi Swenson, Financial Advisor, Swenson Financial

Investing even small amounts can grow to large sums over time.

Acommon question I am asked by new clients is how much money they need in order to start investing. People often assume it takes a large sum of money to get started. The truth is that you don’t need much, and when it comes to investing, one size does not fit all. Obviously, the more money you invest, the greater your potential return. But that also comes with associated risks. The best way to determine how much money you should start investing is by following three simple steps: assessing your financial situation, determining your budget, and crafting an investment strategy. Here is a closer look at the process I follow with my clients:

1. Assess your current financial situation.

The first step in determining how much money you need to start investing consists of assessing your current budget, income, assets, and debt. First, determine the amount of your income and where it’s being allocated. Ask yourself, “How much of my income covers needs? How much covers wants? How much covers debt? How much is allocated to savings?” Look at all these numbers and see where you can cut back and where you may need to supplement. To get the best representation of your current financial situation, make sure you are keeping track of your financial data. There are a handful of tools that can help track your spending habits and help you stay on budget. Here are a few popular options: • YNAB (Youneedabudget.com) • Mint (Mint.intuit.com) • Excel (Microsoft.com) These are just a few applications that can help you keep track of your finances, but there are so many other ways you can do this. Most tools offer a free trial. I would recommend you try a few, and pick the one that aligns best with your approach. 2. Determine your budget.

Now that you’ve looked at all the numbers and determined where your money is being spent, it’s time to determine what you can change or how you can alter your budget to set yourself up for success. Maybe you’re spending too much money on wants that you could be putting toward savings, debt, or investments instead. Knowledge is power. If you understand where your budget is lacking, you can figure out how to improve your spending habits. The key to following a budget is organization. As you look at your financial numbers each month, you’ll create accountability and remind yourself of how much of your income you have allocated to each subgroup. This is where budgeting apps come in handy. The reason investing has no one-size-fitsall approach is because income, debt, and spending are not one size fits all. When creating your budget, you need to do what’s best for you. Outside of covering your needs, what are your goals and priorities when it comes to finances? If you have a lot of high-interest debt, maybe you should allocate more of your income to reducing and/or getting rid of this debt rather than establishing an emergency fund. Budgeting is personal and specific to your needs and goals.

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3. Start Investing.

Once you have a good understanding of your budget, you can see how much money you have to work with when investing. I often remind my clients that starting small is better than not starting at all. Investing even small amounts can grow to large sums over time. To illustrate this point, someone who starts saving $5,000 per year at age twenty-five will have more than twice as much money by age sixty-five than someone who waits until age thirty-five to start saving. Compound interest is a beautiful thing. The key is to just get started. Even if you start with a smaller amount, you can always increase your investments over time as your financial situation permits. To maximize the amount you invest, consider adding anything extra that you accumulate. This could include things like tax returns, work bonuses, cash gifts, or other special lump sums.

Now that you’ve figured out how much to invest, it’s time to determine where to invest. This is where an experienced financial advisor steps in. A 2019 Vanguard study, Putting Value on my Value, found that, on average, a $500,000 investment would grow to over $3.4 million under the care of an advisor over twenty-five years, whereas the expected value from self-management would be $1.69 million—50 percent less. In other words, an advisor-managed portfolio would average 8 percent annualized growth over a twenty-five-year period compared to 5 percent from a self-managed portfolio. An experienced financial advisor can partner with you to review your financial picture and develop a budget that addresses your individual concerns. Ultimately, they will help you determine the investments that would be most appropriate for your situation and goals so that you can have an amazing financial future.

After graduating with his MBA in 2012, Levi Swenson joined Northwestern Mutual and quickly became instrumental in the development and growth of the St. George Utah office. His client-first approach to wealth management has propelled him to the top echelons of wealth management. Levi has been recognized as a Top Financial Advisor 100 Lives and New Clients writer, a Platinum Top 50 Award recipient, and a Top 20 Qualifier for the Lives Leader Summit Forum. Levi and his wife, Michelle, have been married for eleven years and live in St George with their three children. You can connect with Levi at Swensonfinancial.com or by calling 435-656-7813.

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