Investing 101: What You Need to Know for Long Term Financial Growth

Investing can be intimidating and overwhelming, especially for those just beginning their financial journey. In this episode of “Your Money. Your Mission.” Dominic Ceci, Senior Vice President and Director of Portfolio Management & Trading at Johnson Financial Group, sheds light on some key insights to help new investors navigate the complex financial landscape.

Understanding Market Direction: Bull vs. Bear

In a bull market, prices are on the rise, and optimism prevails. On the flip side, a bear market is characterized by a prolonged period of declining prices and a prevailing sense of fear. Dominic advises investors to focus on their emotional state rather than rigid market rules. Being aware of the dominant emotions—greed in a bull market and fear in a bear market—helps investors make more informed decisions and avoid irrational decisions that can hurt your portfolio.

Equities and Fixed Income: Building a Foundation

For those delving into investments, it's crucial to understand the distinction between equities (stocks) and fixed income (bonds). Equities represent ownership in a business, offering the potential for growth but with higher volatility. Fixed income, on the other hand, involves loans or bonds with known interest payments, providing stability. Diversifying across these asset classes can help manage risk and optimize returns.

Market Caps and Geographical Diversification

On the episode Dominic next goes into market capitalization (cap), distinguishing between large-cap and small-cap stocks. Large-cap companies are well-established, often considered safer investments, while small-cap companies may offer higher growth potential but come with increased risk. The discussion extends to geographical diversification, where domestic and international investments can further spread risk.

Active vs. Passive Investing: Navigating Investment Strategies

Active investing involves hands-on portfolio management, with fund managers making decisions based on research. Passive investing, on the other hand, entails tracking an index without frequent buying and selling. It’s OK to explore both strategies, Dominic recommends starting with passive investing due to lower fees and then expanding into active strategies as you gain confidence.

The Power of Diversification: Mitigating Risk

Diversification is a key theme. Dominic advises against putting all eggs in one basket, not only within asset classes but also across various types of investments. By diversifying, investors can reduce the impact of a poorly performing asset on their overall portfolio and focus more on long term sustainable growth.

Emotional Resilience: A Long-Term Investment

Plan Speaking of long term sustainable growth, Dominic emphasizes the importance of sticking to a long-term investment plan. The behavioral aspects of investing, often influenced by fear and panic, can be mitigated through a well-structured plan. Dominic suggests trusting the advice of financial advisors during turbulent times, as short term emotions can easily override rational decision-making and cause poor decision making.

Educational Resources: Books for Beginners

For those seeking additional resources, Dominic recommends several books. "The Intelligent Investor" by Benjamin Graham, introduces the concept of value investing. "Business Adventures" by John Brooks offers real-world stories about business hijinks, providing insights into the world of investments. "The Psychology of Money" provides a deep dive into the behavioral aspects of financial decision-making, and "When Genius Failed" by Roger Lowenstein recounts the collapse of a hedge fund, offering lessons in risk management.

Closing

Investing is a journey that requires knowledge, emotional resilience, and a well-thought-out strategy. By understanding market dynamics, diversifying wisely, and staying informed through educational resources, novice investors can embark on a path to financial success.

To help you with your long-term financial journey, talk to a Johnson Financial Group advisor in your area today.