It’s foundational: The 5 building blocks of investing

September 18, 2023
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Knowledge is power, and investing is no exception to that rule. For a successful investing portfolio, it’s helpful to have a strong foundation of knowledge to build upon. If you want to be a successful investor, there are a few things you need to consider as you continue to invest — we’ll call them the five building blocks of successful investing.

As you read, keep in mind that if you don’t have all these building blocks in place for your Online Investing account already, it’s not too late. If you’re missing one or more of these components, we can help you get them in place.

Building block 1: Identify your why

Look before you leap, and ask yourself an important question: Why am I investing? You probably started an Online Investing account for a reason, so if it’s as vague as “I just want to stockpile money,” you might want to narrow it down to a specific goal — even if it’s just a monetary goal.

What’s your why? Is it early retirement? Semi-retirement? An epic trip across Europe? Or college for the kids? Your unique goals can’t be reached unless they’re acknowledged. And just as your why isn’t the same as your friends’ whys, the investments that might be right for your friends probably aren’t the exact right fit for you either.

Those who don’t have a financial goal in mind when they begin investing often get derailed. According to investment experts, goal-based investing has been proven to reduce impulsive decision-making and overreaction to market fluctuations. And wouldn’t you know it? This is a perfect segue into our next building block.

Building block 2: Understand your risk tolerance

How willing are you to withstand the highs and lows of market fluctuation and its effects on your portfolio? With more risk comes the potential for more reward, but it also means you’re at a risk for loss too.

What is your risk tolerance as the market ebbs and flows? You’ll be better able to find the right mix of investments if you know your risk tolerance right away. If you haven’t done some soul-searching to determine your risk tolerance, remember that the general rule is to ignore short-term volatility and stick to your plan, even during significant market slumps. Your Online Investing account will also help you determine your risk tolerance and set up the right investment mix accordingly (and automatically).

Building block 3: Nail down your timeline

The best way to know your time horizon is to pick a year when you want to accomplish your goal. If you want to retire at 65, you simply set your timeline to meet your financial goal during the year in which you turn that age and figure out how many years you will have to meet your savings objectives. How many years until the kids are off to college? When are you wanting to take that trip through Europe? Knowing your time frame will help you plan — and keep you on track!

Building block 4: Do some research

It’s OK that you’ve set up your Online Investing account, even if you don’t know everything about investing. The good news? Our Learning Center is full of great information that can help you better understand more about the investing world, and our team is always here to help you better understand things too — so don’t hesitate to reach out with questions! The even better news? Your Online Investing account will create an exchange-traded fund (ETF) portfolio and do the work for you while you explore and learn about the ABCs of investing.

If you’re interested in learning more about other investment options, our Learning Center has articles on other accounts too, such as Roth vs. traditional IRAs, taxable investment accounts, and 529 College Savings Plans. Once you understand the types of accounts, you can continue to build your portfolio with these additional investing options! Simply reach out to a member of our team or stop by a branch to get started.

Building block 5: Practice patience

Being patient with your investments and timeline will help you weather the highs and lows of the stock market. If you’re the kind of person who will sell off when the market dips, that means you could realize losses more than most investors. Selling during downturns is like buying a car at full retail and then unloading it when the value has dropped. However, if you’re the kind of person who sees market downturns as a great time to buy (consider it a sale on stocks!), you could stand to potentially make even more money when the market rebounds. That’s like buying a car on clearance and reselling it for full retail.

Remember that your investment goals are not fully achieved in a single day, and neither are they busted. Understanding that the ebbs and flows of the market are completely normal (and expected) will help you become an investor who ignores the stormy weather and focuses on the eventual sunny days on the horizon. And that’s the kind of level-headed investor who reaps the rewards.

Online Investing can help

Finally, don’t forget that at UBT, people don’t have your investments, your investments have people — people who are here to help you learn and succeed. Reach out anytime!

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Learning Center articles, guides, blogs, podcasts, and videos are for informational purposes only and are not an advertisement for a product or service. The accuracy and completeness is not guaranteed and does not constitute legal or tax advice. Please consult with your own tax, legal, and financial advisors.

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