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Tips for First-Time LGBTQ Diverse Investors

Plan ahead and stick to your investment strategy.

Collaborating with a financial planning professional can help you tailor an asset allocation strategy that aligns with your risk tolerance and financial goals.

Are you new to investing? In the world of investing, the power of compounding is a force to be reckoned with. Learn how you can unlock this power.

1. Unpacking the Power of Compounding
Compounding is a remarkable investment phenomenon that goes beyond simple interest, allowing you to earn returns on both the initial investment and the previously acquired returns. For example, imagine investing $1,000 at a 7% annual interest rate. In the first year, you’d earn $70 in interest, bringing your total to $1,070. However, in the second year, you’d earn 7% not just on your initial $1,000 but on the $1,070, resulting in $74.90 in interest. This compounding effect snowballs over time, highlighting the importance of a more extended time frame for exponential financial growth.

2. Doubling Investments: The Rule of 72
The Rule of 72 is a valuable tool for investors to estimate how long it takes for an investment to double. By dividing 72 by the annual interest rate, you can get a rough idea of the doubling period. For instance, if you achieve an average annual return of 7.2%, your investment would double in approximately 10 years (72 ÷ 7.2 = 10). This rule emphasizes the significance of initiating investments early, as time is a crucial factor in leveraging the power of compounding.

3. Prioritize Saving, Pay Yourself First
Many people postpone investing, often citing pending expenses and debts or waiting for additional income. However, adopting a mindset of paying yourself first can revolutionize your approach to saving. This strategy involves setting aside a portion of your income before addressing other financial obligations.
Consider creating distinct savings buckets for specific goals such as vacations or a new car. For example, if you’re planning a $3,000 vacation in a year, allocate $250 per month to a dedicated savings account. By automating this process, you ensure consistent contributions and build a financial cushion for your goals. The same principle applies to longer-term objectives, such as saving for a car purchase in three years. Allocate funds monthly to match or approach your anticipated future car payment, fostering disciplined saving habits.

4. Allocating Assets: A Strategic Approach
Diversifying funds by distributing them across various asset classes is a cornerstone of a sound investment strategy to mitigate risk. There’s no one-size-fits-all solution for risk tolerance; it’s a personalized aspect of financial planning.

For instance, consider a young investor with a longer time horizon. They might opt for a more aggressive asset allocation, emphasizing growth-oriented financial investments that carry higher risk but offer greater potential returns. On the other hand, an older investor approaching retirement may prefer a more conservative approach to protect their accumulated wealth. Collaborating with a financial planning professional can help you tailor an asset allocation strategy that aligns with your risk tolerance and financial goals.

5. Enlisting Professional Guidance
Navigating the complexities of financial planning can be challenging, particularly for first-time investors. Getting help from a professional adds a beneficial layer of expertise to your investment journey.

Grace S. Yung, CFP ®, is a Certified Financial Planner practitioner with experience in helping LGBTQ individuals, domestic partners, and families plan and manage their finances since 1994. She is the managing director at Midtown Financial Group, LLC, in Houston. Yung can be reached at grace.yung@lpl.com. Visit letsmakeaplan.org or midtownfg.com/lgbtqplus.10.htm.

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Grace S. Yung

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the September 2017 issue of Texas Monthly.
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