There are so many investment options available that it can be difficult to know where to start, but it’s important to take responsibility for your financial future as soon as possible.
The resources in this section can give you some quick insights into investing, and a Modern Woodmen representative can help you choose the right investment plan for you.
Why invest?
Investing is a good step towards reaching your financial goals. Whether your goals are short-term (a family vacation) or long-term (retirement), the sooner you start investing, the greater your chances of reaching them.
Set your financial objectives
Before making any investment decisions, define and prioritize your short- and long-term financial objectives. This easy-to-use model can help you do this and build a financial house.
1. Stabilize your current financial situation
Prepare a budget to assure that you are living within your means and saving to meet your goals, and be sure to invest for short-term emergency needs that may arise, such as car repairs and a loss of job.
2. Protect yourself from risks
Purchase life, disability, health and other insurance products to minimize the impact of risks like premature death and disability.
3. Invest for long-term goals
Once the foundation of your financial house is established, direct your resources toward long-term financial goals, such as retirement and college education.
4. Create your estate plan
Your financial house is not complete until you develop a plan for protecting your family and transferring your estate at death.
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Determine investment constraints
Before you begin an investment program, review these factors to find out how much time and risk you’re willing to take.
Time Horizon
The amount of time you have to invest will impact the decisions you make.
Accumulation period
The longer your period of time to accumulate funds, the more risk you should be able to assume.
Distribution Period
When your goal has been reached and you begin withdrawing funds, redeeming the investment over a period of time rather than all at once increases your time horizon.
Risk Temperament (volatility)
As you move forward with your investment plan, keep in mind:
Market Risk
This is also known as systematic risk. At times, prices of financial securities may rise or fall due to outside influences.
Inflation Risk
If inflation grows faster than the earnings of the investment, you run the risk of losing purchasing power. It is important to keep pace with or exceed the rate of inflation.
Political Turmoil
Political events in the United States and abroad often impact financial markets and play a role in market volatility.
Credit Risk
Whether purchasing a government bond or a lower credit quality bond, consider the financial stability of the entity, its ability to pay the interest promised and the principal at maturity.
Currency Fluctuation
This is the risk of the value of the U.S. dollar rising or falling relative to the value of overseas investments. There is generally a greater risk when investing in international or foreign markets. However, in an era of globalization, this currency risk may impact U.S. domestic companies with foreign operations.
Interest Rate Risk
Changing interest rates can affect investments. A diversified portfolio may help minimize the effects.
Taxation
Investment vehicles may or may not receive favorable tax treatment at any given time.
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Explore your investment options
Before you choose your investments, review the characteristics of the asset classes, how they have performed historically and their inherent volatility.
Cash Equivalents (short-term investments)
- Maximum stability of principal
- Maximum liquidity
- Current income
- Subject to inflation risk
Fixed Income
- Debt instruments
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Bonds or bond funds
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High current income
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Somewhat less volatile than stocks
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Subject to price risk due to interest rate changes
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Limited opportunity for long-term capital growth
Equities
- Ownership (equity) of business
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Potential for long-term capital growth
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Minimal current income
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Volatile returns over short time periods
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Historically have outperformed inflation and taxes combined
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Choose the right investments for you
Use this questionnaire to establish an asset allocation mixture that’s based on your financial objectives, comfort level with various types of financial instruments and general risk temperament.
Investment Profile Questionnaire >>>
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Manage the volatility of your investments
Use these well-known strategies to manage the volatility of your investments.
Dollar cost averaging* 
Dollar cost averaging is the process of investing fixed-dollar amounts at regular intervals over a period of time. This strategy can help manage volatility and remove the anxiety of timing the market.
As you can see from the chart below, your investment purchases more shares when the price is lower and fewer when the price is higher:
Asset allocation
Asset allocation is the process of positioning your money in various asset categories. This technique helps match your tolerance for volatility with your financial objectives. How well an investment program does depends on the allocation of assets in that investment.
Investment Success
While some believe that successful investing depends mostly on security selection and market timing, you can be even more successful by implementing an asset allocation strategy. However, diversification cannot assure a profit nor protect against a loss.
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Monitor your asset allocation
There are asset classes that may grow to assume a larger percentage of your portfolio. This may change your intended allocation and expose you to risks that you may not be willing to assume, so be sure to review your asset allocation periodically by:
Rebalancing your portfolio
Rebalance your portfolio periodically to return to the original mix. This can be accomplished in two ways: Option 1 below is best for those products that are tax-deferred, such as an annuity product, or within a tax-qualified plan. Option 2 below is suggested for those situations where tax consequences may be an issue (you can simply reallocate with future contributions rather than incur potential tax liabilities).
1. Reposition Existing Investment Allocation
This chart illustrates the results of rebalancing an equally weighted asset allocation of large-company stocks and small-company stocks, compared with an asset allocation in which there was no rebalancing during the period 1970-2006.
Past Performance does not guarantee future results.
2. Change Future Investment Contributions
It is important to reassess your asset allocation periodically. As needs change, it may be necessary to change the investment mix to accurately reflect financial objectives.
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How to start investing for your future
For a comprehensive needs analysis and help creating your investment portfolio, contact a Modern Woodmen representative in your area.
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