Cove Financial Planning, LLC
Do Well While Doing Good



How to Get Started with Investing


Remember the time you finally started that essay in school the night before it was due? As you frantically organized your thoughts and sources, you asked yourself, “Why has it come to this?” We’ve all been there. Some of us blame the obligation to extra-curricular activities, and others say they couldn’t find the time between classes and their part-time job at the movie theater. The reality is, for most of us, that the paralysis of not knowing how to start kept us from getting started in the first place. Furthermore, the self-doubting thoughts of whether or not we were on the right track hindered us from taking confident initiative early on in the process.

Procrastination, as it were, is not just reserved for well-intentioned, sleep-deprived high schoolers. Investing can be complex, just like organizing and drafting a thoughtful essay. There are numerous factors to consider and far too many resources (thanks to the internet) that get in the way of making confident decisions that align with investors’ unique goals and situation. Consider the following points before you get started with your own investing.

Find Your Purpose

Ok, so your purpose is to “make money.” Great. But why? Define your goal more specifically, and write it down somewhere! If you want to save for retirement (especially if you’re a few decades from it), paint a more detailed picture beyond, “I want to retire someday.” Think, for example, “I want to stop working my full-time job by 50 years old, and buy a tiny house near the ocean in California.”

Every time you see your 401(k) contribution get sucked out of your paycheck for your eventual retirement, you should think about the freedom of your outdoor shower overlooking the beach in your west coast tiny home. Having a purpose behind a long-term, and sometimes elusive, goal can make sticking to the necessary, unpleasant actions to get there that much easier.

Understand your Risk Tolerance

Before you implement a long-term investment strategy, it’s important to think about your own personal tolerance for risk. How much are you willing and able to lose during a potential downturn while staying on track towards reaching your investment goals? More than likely, the closer you are from your investment goal, the lower your tolerance of risk. For example, an investor just 5 years from retirement will probably have a much lower risk tolerance than a 25-year old beginning her career. Why? Because the older investor simply cannot afford to lose a large chunk of money in his portfolio, when he doesn’t have the time horizon necessary to recoup potential losses. The 25-year old investor, by comparison, might have 30+ years during which she can hope to regain what she lost in a crash, meaning she can afford to be more aggressive with her portfolio.

Some investors may have the capacity for higher risk, but not necessarily the tolerance for it based on personal circumstances and emotional factors. The bottom line is that every investors is different, and your risk tolerance (and portfolio) should reflect your unique circumstances. If you work with an advisor, be sure to request a risk profile assessment, if you haven’t had that conversation yet. If not, there are plenty of questionnaires online that can help you define your risk tolerance.


Imagine two elevators are running next to each other. One is attached by a single cable, and the other is attached by four separate cables. If both elevators experience a cable malfunction, which one would you rather be in? The cables attached to these elevators are the “asset classes” of the investment world. Balancing risk in your portfolio basically starts with building your unique asset allocation strategy (the weighting in different “assets” that you own). Asset allocation is arguably the single greatest driver of your potential returns and risk. Generally speaking, stocks are the high-risk, high-potential reward investments, and cash, on the other end of the spectrum, offers low-risk, yet conservative ballast. There’s a lot in between, including bonds, real estate, commodities, etc. There’s a place for each of these asset classes in many investors’ portfolios, and it’s important to know how you will appropriately diversify your portfolio before beginning to invest.

Diversification ultimately helps level out the roller coaster ride of the market over time. If you just own stocks in your portfolio, the chance of you losing big in an equity down market is much higher than if your portfolio holds a mixture of stocks, bonds, and alternatives, for example. You better believe that the US stock market “cable” crashed big time during the 2008/2009 recession, hurting investors that were highly concentrated in US stocks, among other asset classes. Many single mutual funds and exchange traded funds (ETFs) offer diversification, but you may need to invest in a combination of them to diversify your portfolio based on your risk tolerance and goals.

Consider Cost

Look closely at the underlying cost of your investment options, often referred to as the “expense ratio.” You can typically find passive ETFs between 0.05% and 0.40% in cost (that’s the percentage charged on the dollar amount you have invested each year), while actively management mutual funds may be closer to 0.80% to 1.00% in total cost. Investopedia explains what is considered a good expense ratio.

The bottom line is to understand what you’re getting in exchange for what you’re paying. If you work with an advisor or are considering it, make sure you understand if he/she charges a commission for investment products. (Hint: if they’re fee-only, they won’t charge any commissions). Check out this post to learn more about fee-only, fiduciary advisors.

Don’t Pay Uncle Sam too Much

Nobody likes paying taxes. The good news with situating your investments is that you really do have some control over when you pay taxes. After all, it’s not about what you make, it’s about what you keep. It’s important when you devise your investment strategy, especially for retirement, to consider what accounts you’re saving into and how they are taxed. Many investors will benefit from some balance within the “tax triangle,” shown below.

Tax Triangle_Transparent.png

It’s important to have some balance between tax-deferred, tax-free, and taxable accounts. When you eventually take distributions, you will then have the option as to how you want your distribution taxed for the year it’s taken. If pulling money out of your tax-deferred IRA pushes you into a higher tax bracket, for example, it might make sense to withdraw from the tax-free account that specific year down the road. Your income level now vs. your anticipated income level when you start taking withdrawals in retirement also plays a big part in determining how to balance between these account types.

The most important thing to do is to start! Procrastination might not have resulted in dire consequences with your high school papers, but the stakes are higher with investing. You work hard for your money, and it should work hard for you so you can eventually have the freedom to live the life you want. Don’t second guess yourself after creating an investment strategy that makes sense for you, and stick with it, even when the markets get choppy.

Are you ready to work with a fee-only financial planner, and get started with investing? Reach out to me at or schedule a free consultation call.

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Ben Smith is a Whitefish Bay, WI fee-only financial advisor and CERTIFIED FINANCIAL PLANNER™ (CFP®) Professional serving clients in the greater-Milwaukee, WI area as well as virtually across the country. Cove Financial Planning provides comprehensive financial planning and investment management services to individuals and families, regardless of location, with a focus on Socially Responsible Investing (SRI). Ben acts as a fiduciary for his clients. He does not sell financial products or take commissions. Simply put, Cove Planning sits on your side of the table, and always works in your best interest. Learn more how Cove Planning can help you Do Well While Doing Good!

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Ben Smith, and all rights are reserved. Read the full Disclaimer.