BUILD YOUR CONFIDENCE: KEY TERMS YOU SHOULD KNOW
Before you have a conversation with your advisor, brush up on these financial terms.
Mutual fund
This investment vehicle pools together the money of many investors. This money is managed by investment professionals who select stocks or securities to meet specific investment goals.
Exchange-traded fund (ETF)
An ETF is a pooled investment vehicle (similar to a mutual fund) that trades throughout the day on an exchange (like a stock). ETFs can help provide consistency, diversification, transparency and risk management through a rules-based, repeatable approach.
529 plan
A 529 plan is an education savings plan with tax advantages designed to help families set aside funds for future college costs with potentially less of a tax burden.
WHY FINANCIAL ADVISORS ARE IMPORTANT, AND HOW TO GET THE MOST OUT OF THEM
When it comes to the money you've worked hard to earn, there's no better asset than your financial advisor. Learn how to work effectively with your advisor so they can help you with your financial well-being.
Worth a conversation
Many people worry they don't have enough assets to warrant time and attention from an advisor. Start the conversation and know that your future matters.
Ask questions
Not every investor has a bank of financial know-how, but that doesn't mean you shouldn't know what's going on with your finances. No question is too small. Just ask.
Leverage their expertise
Just like going to see any professional, financial advisors have been trained to help manage your finances. Lean on them for support and guidance whenever possible.
THE IMPORTANCE OF HAVING A SOLID FINANCIAL PLAN
It's no secret that having an effective financial plan can help you save for the future and meet your financial goals. But it's important to understand the essential steps so you can better work with your advisor to determine the plan that's right for you.
Calculate your net worth
Once you know where you stand in terms of net worth, you can map out an appropriate financial plan. Simply add up all your assets and subtract all your liabilities. What's left is your net worth.
Establish a budget
After you figure out what you have, you need to see where it's going. That's where budgeting comes in. By tracking your cash flow, you can prioritize expenses and find more money to save and invest for future goals.
Protect your future
Don't forget to establish a will and an estate plan to help protect your assets. Assess your insurance needs. Life, disability and long-term care may be worth considering.
DEMYSTIFYING ASSET CLASSES AND INVESTMENT CATEGORIES
An asset class is nothing more than a group of securities that behave similarly in the marketplace. By understanding their behaviors, you can make more informed decisions about how to allocate your funds in order to reduce risk and increase your probability of making a strong return.
Asset class
Financial assets are grouped based on common characteristics such as a focus on equities, fixed-income or asset allocation investment options.
Diversification
It's tempting to put all your eggs in the highest performing baskets, but past performance isn't necessarily a true indicator of what will happen in the future. Having a variety may help alleviate your potential risk.
Market capitalization
This is just another way of indicating how big a company is and the total value of its tradable stock. As a general rule, large-cap companies have a tendency to provide more stability and less growth, and small-cap companies offer less stability and more growth potential.
Disclosures
Diversification does not assure a profit or protect against loss.
Columbia Threadneedle Investments does not offer tax or legal advice. Consult with a tax advisor or attorney.
TOP INVESTOR GOALS
Use these frequently asked questions to help define your financial goals.
