The Truth About Passive Investing: Bend, Oregon Financial Advisors Explain
Passive investing can be a powerful tool for professionals in Bend, Oregon to grow their wealth. However, it’s crucial to align your investment strategy with your long-term financial goals and seek advice from a local financial advisor.
Investing allows you to grow your money beyond your paycheck, but many people hesitate to take that first step. Fear of making mistakes or a lack of trust in the financial markets can lead some people to hoard cash or avoid investing altogether. The truth is, there are no investing secrets, and investing does not need to be complex in order to be effective. The real secret is knowing the right questions to ask and committing to a strategy that aligns with your unique values and goals and circumstances.
We have found that most investors do not sufficiently articulate their financial objectives, and do not revisit those priorities on a regular basis. These missing steps can lead some investors to adopt a 'set-it-and-forget-it' approach which may not be optimized at the outset, and which may miss the mark more and more as time goes on.
Imagine this: You pick low-cost index funds from a giant investment provider like Schwab or Vanguard. You set up automatic deposits, and voila! Your money grows in the background, like a well-oiled machine.
This approach, often called passive investing or "set-it-and-forget-it" investing, is a popular strategy for busy professionals and long-term investors. Many personal finance books and YouTube gurus recommend it, highlighting its simplicity and potential for steady growth.
But before you jump in, there's more to the story. While set-it-and-forget-it investing can be a powerful tool, it's not a one-size-fits-all solution. And long-term investing requires regular care; wouldn’t you prefer a well-manicured garden versus one that has run amok with weeds and unpicked vegetables?
It’s important to understand what you might be missing out on by not being more involved.
Questions to Ask Yourself
- Do you understand your investment mix? Index funds track specific market sectors and indices, but there are different types with varying risk profiles.
- Have you considered dollar-cost averaging? This strategy involves investing a fixed amount regularly, regardless of market fluctuations. It can help smooth out your returns over time.
- How will you allocate your assets? This refers to how you divide your investments between stocks, bonds, and other asset classes. Your age, risk tolerance, and financial goals all play a critical role.
- Do market fluctuations matter? While you won't need to react to every market blip, understanding how to make adjustments based on long-term trends can be beneficial.
- How will you withdraw your money? How much can you safely and tax-efficiently withdraw each year from your investments without running out of money later in life?
- Will you reinvest dividends? Many investments pay dividends, which are like small cash bonuses. Reinvesting these dividends can significantly accelerate your portfolio's growth over time.
- Should you rebalance? As the market changes, your investment mix can drift away from your original plan. Rebalancing involves buying or selling assets to get back on track with your desired risk tolerance.
Limitations of Passive Investing
While set-it-and-forget-it investing can be a good starting point, it’s important to remember it has limitations. Do you have a plan for how you’ll react to complicated situations?
- Complexities of taxes: It’s important to understand the tax implications associated with different account types and how the taxation of your investments can differ (like capital gains and dividends).
- Market volatility: While passive investing aims for long-term growth, there will be periods of market downturns. Having a plan for navigating these periods can be helpful.
- Life events: Major life events like divorce, inheritances, or career changes may require significant adjustments to your investment strategy.
The Role of a Financial Advisor
Remember, investing is just one part of a well-rounded financial plan. Protecting your future income is just as important. In addition to providing guidance on investments, a CFP® professional can help with:
- Personalizing your plan: A good advisor will take your unique financial goals, risk tolerance, and life situation into account when creating an investment strategy.
- Navigating complexities: Financial advisors can help you understand tax implications, navigate market volatility, and adapt your plan for life events.
- Staying on track: Having a professional by your side can help you stay disciplined and avoid making emotional investment decisions.
Think you need a mountain of money to get professional investment advice? Not at all. Many CFP® professionals offer fee-for-service advice. This means you can get expert guidance without the pressure of handing over your assets for management.
What you need to know
Passive investing can be a great strategy for some, but it’s not a magic bullet. Understanding what it involves, and its limitations is crucial before deciding if it’s right for you. If you’re unsure about any aspect of investing, consider getting advice from a qualified financial advisor in Bend, Oregon. At Bend Wealth Advisors, we understand that financial planning isn’t one size fits all. Whether you’re looking for comprehensive financial planning or a la carte financial advice, we’re here to help.
Stu Malakoff, CFP®, CDFA®, CPFA, CRPC® I President, Bend Wealth Advisors
CERTIFIED FINANCIAL PLANNER™
523 NW Colorado Ave. Ste. 100
Bend, OR 97703
Direct 541.306.4325 I Office 541.306.4324 I stu@bendwealth.com
Securities offered through Raymond James Financial Services, Inc., member
The information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Bend Wealth Advisors and not necessarily those of Raymond James
