Do These 4 Things Before Investing Your Hard Earned Money

Do These 4 Things Before Investing Your Hard Earned Money

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One of the common binding traits of those that achieve millionaire status is that they educate themselves before taking an action.

So today, we will be discussing 4 primary topics that lead to better investment outcomes.

1) Access - otherwise known as liquidity.

All investments are made with one purpose in mind - reclaiming the money that was invested with some additional profit.

In order to make purchases or actually gain economic benefit from your investment, you will eventually need to exit the investment and return to cash.

The concept of access, or liquidity, refers to how easily and quickly you are able to do that.

Real Estate investments, for example, are not easily accessible or liquid. Once you invest your money in a property, it is likely that it will be locked up for a long period of time. Even if you need to get quick access to that money, it could take months or even years to prepare the property for sale, list it, find a buyer, finish the escrow process, and actually see the money in your bank account.

Stocks & bonds on the other hand, are extremely liquid. If you have $10,000 invested in Microsoft stock but need access to that money tomorrow, you can simply execute a sell order through your brokerage account and that $10,000 will be available to you within days of that transaction.

Understanding what level of access or liquidity you will have based on your investment selection is a key component of making wise investment decisions.

2) Tax Implications

Taxes are extremely complicated. There are ordinary income brackets, capital gains brackets, dividend income rates, trust & estate tax tables.

On top of that, different types of investment accounts are taxed in different ways.

A Traditional IRA or 401k might be taxed ONLY in the future.
A ROTH IRA or 401k will be taxed NOW but not in the future.
A taxable brokerage account will be taxed now AND in the future.

What does this all mean for you and your investment returns?

Well, at the very least, it means that it is complicated to interpret!

For this reason I always recommend individuals seek the counsel of a professional fee only fiduciary financial advisor before making investment decisions. You want to know how your hard earned money will be effected by the investment vehicle and account you use. A fiduciary financial advisor will educate you and recommend the best accounts and investment types for you.

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3) The costs and fees associated with different investments

Fee's and costs range widely among investment vehicles.

For that reason we won't be going into the specifics of each type.

Suffice it to say that all investments have costs associated with them. This should not turn you off to making that investment decision.

However you MUST understand those costs so that you can truly evaluate the performance of the investment in question.

4) Pro's and Con's

I always advise making a pro's and con's list as you evaluate your investment opportunities.

As with costs, investments always have tradeoffs.

Some are more easily accessible but provide fewer tax advantages.

Some are locked up for longer but provide a more guaranteed return.

Some have shorter lockup periods with less guaranteed returns but offer much more flexibility.

Some offer unique tax advantages.

In conclusion

Investing is a wide complex universe.

Whenever you lock money into one investment, it is at the expense of other possible investments.

You have to be able to understand them so that you can compare them and make the best decisions possible.

I encourage you not to rush, to educate yourself, and to learn about where you'll be investing your money.

00:00 Intro

01:12 The Four Key Areas To Consider

02:21 Liquidity/Access

04:32 Tax Implications

05:33 Associated Fee's/Costs

07:44 Features or Pro's/Con's