Spring is a time of new growth and a great time to commit to financial literacy
Financial literacy begins with personal finance: budgeting, monitoring expenses, and setting up an emergency fund
Beyond the company 401(k) plan—a common entry point to investing—are a whole host of investment alternatives
New Year’s resolutions? Yesterday’s news. If you made them, you likely broke them by Valentine’s Day.
Besides, spring is the natural time to hit the reset button. The vernal equinox marks the birth of a new growing cycle—and depending on where you live, it might begin with crocuses and daffodils poking their heads above the melting snow. As temperatures rise, we open up the house and let the fresh air in.
It’s a time of new hope—particularly important in 2021 as we look ahead to vaccinations, economic reopening, and a day when life might return to a semblance of normal after a pandemic that touched the lives of pretty much everybody.
Not coincidentally, springtime—April, to be exact—is National Financial Literacy Month. Perhaps it’s time to draw some inspiration from those budding flowers and trees and work toward personal financial growth.
What’s the Starting Point of Your Financial Growth?
Just as every garden plan starts with a check of those seeds and bulbs, your financial growth journey begins with a look at where you are. Here are a few questions to get you started:
- Are you on the right track with your savings, investing, and retirement planning?What kinds of investments can you make, and are those investments properly balanced and diversified?What’s your tolerance for risk, and do your investments reflect that risk tolerance?If you have children, are you teaching them the importance of financial literacy and encouraging them to spend and save wisely?
By taking the time to plan and discuss these questions with your loved ones and seek guidance, you can better navigate life’s financial journey.
Financial Literacy: It Begins at Home
Like many things in life, your financial journey begins at home—let’s call it personal financial literacy. Have you set up a budget to monitor your income and expenses? Many financial pros suggest that as a good place to start. Separate your monthly expenses into needs, wants, and wishes (and let’s not forget taxes). Do you have an emergency fund you can tap into in case of unexpected expenses?
If you’ve squared away your home finances—including setting up savings goals—and you’re ready to begin investing, it might be time for the next phase. For many investors, that first step is a company-sponsored 401(k) plan—a defined-contribution plan that allows employees to make contributions from their paychecks before federal tax. Contributions go into your own 401(k) account, and you’re typically able to choose among investments provided under the plan.
Employers may offer a matching contribution, usually as a percentage of your contributions. If your employer offers a match and you can swing it, consider investing up to the matching limit to get the most bang for your buck.
Don’t have a company 401(k)? Or are you contributing to the max and want to invest even more toward retirement? Consider the Individual Retirement Account (IRA). IRAs allow tax-deferred growth on funds invested, and contributions may be tax deductible depending on personal circumstances. Withdrawals from traditional IRAs are taxed at current rates.
Do you have children? It’s never too early to begin teaching them the value of money and the power of compounding (which can help savings grow but can also make debt harder to pay off). And don’t forget about saving for college, perhaps with a 529 plan or a Coverdell education savings account.
What Can I Invest In?
Although you can invest in many instruments, they can be boiled down to a few major types: stocks, bonds, ETFs, and mutual funds.
- Stocks. Buying a share of stock confers a piece of ownership in a company, meaning you hold a claim on any of the company’s potential future earnings (and would also be subject to any company losses but not beyond the value of your shares).Bonds. Bonds and other so-called fixed-income securities tend to be viewed as a more stable and predictable form of investing compared to stocks. U.S. Treasuries, for example, may help ride out the greater volatility sometimes seen in individual stocks or the broader stock market.Exchange-traded funds (ETFs). ETFs are listed on exchanges and can be traded like a stock. They allow investors to buy or sell shares in the collective performance of an entire stock or bond portfolio or index as a single security. The risks of trading ETFs are similar to those of stocks.Mutual funds. With mutual funds, investors pool assets under the purview of professional money managers who, depending on the type of fund, purchase stocks, bonds, and other securities. Mutual fund investors often include individuals’ 401(k) plans and IRAs.
If you’re invested in a company 401(k), your choices may be limited to a few mutual funds. But if you have an IRA, or if you’ve opened up a brokerage account, you have a much wider set of choices.
More Asset Classes for the Advanced Investor or Trader
Recall the questions above, specifically the one about risks and risk tolerance. If you’re looking for exposure to more asset classes and you’re comfortable with the risks, you might consider options, futures, and forex markets. Keep in mind these products may not be right for everyone.
- Options. These are contracts that grant the owner (or holder) the right to buy or sell an underlying asset. Options can be used to seek income on existing positions, try to protect or hedge positions, or to speculate on the direction of the price of a stock, commodity, or other security.Futures. Futures contracts allow users to speculate on the price direction of stock indices as well as commodities such as crude oil, gold, and soybeans. The futures market can also offer insight on supply and demand in certain markets or signs of economic strength or weakness.Forex. Like futures, the foreign exchange (forex) or currency market tends to carry more risk and volatility and should be approached with caution. Forex rates fluctuate based on global interest rates, geopolitical events, and other factors.
Options, futures, and forex markets are complex instruments requiring special privileges in your trading account. Not all accounts will qualify. Plus, these instruments involve leverage (margin), which can amplify gains and losses alike.
Looking for Financial Education? One-Stop Shopping
Financial knowledge is indeed powerful stuff. Although there are bound to be a few gaps in anyone’s financial literacy, the good news is that there’s a wide range of investing education resources to help:
- Immersive curriculum. Industry professionals at TD Ameritrade have designed and developed free online courses to help clients become more informed investors. These in-depth courses are accessible to clients via tdameritrade.com and the thinkorswim® trading platform. They feature lesson plans, quizzes, and even final exams. Articles and videos. Clients can search the TD Ameritrade catalog of more than 200 instructional videos, publications, and tutorials covering investing basics to advanced strategies and pretty much everything in between.Webcasts. TD Ameritrade offers weekly online webcasts for investors of all experience levels. Webcasts allow attendees to interact via live chat with education coaches and fellow investors. Can’t make the live events? Most webcasts are available to watch on demand.Streaming video. TD Ameritrade Network* features live programming throughout the trading day, plus a selection of on-demand content. This programming doesn’t just bring you the news; the experts interpret market events to help you refine your strategies.
*TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company. TD Ameritrade Media Productions Company and TD Ameritrade, Inc., member FINRA/SIPC are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Holding Corporation is a wholly-owned subsidiary of The Charles Schwab Corporation. TD Ameritrade Media Productions Company is not a financial adviser, registered investment advisor, or broker-dealer.
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