Investing 101

  • Published
  • By 2nd Lt. Emily Rautenberg
  • 514th Air Mobility Wing

“I help clients to position assets for the long run,” said Christopher Tomolonis, wealth management advisor, Sunday during the second of four advanced financials workshops held at the Military and Family Support Center.

The first workshop focused on cash management. A write up of the session can be found here. The second workshop was about investing, while the future sessions will be centered on retirement income and estate planning.

Tomolonis outlined three large portions of investing: retirement accounts, savings-style accounts, and stocks and funds. He stressed that before moving forward with any kind of investments, it’s important to consult a financial advisor to personally assess an individual’s financial situation. Further, an accountant should be consulted, for tax considerations.

Upon seeking professional advice, Tomolonis recommended looking into opening an Individual Retirement Account or a 401(k) through your employer. IRAs permit contributors to save up to $5,500 ($6,500 if over 50 years old) annually. 401k plans permit up to $18,000/$24,000. Contributions to an IRA or 401k account may lower your overall tax liability and it is important to note that earnings in qualified accounts are tax deferred.

Military members are offered the Thrift Savings Plan, which is similar to an IRA, and under the Blended Retirement System, have government matching opportunities similar to many company-sponsored 401(k)’s. A 401(k) functions like an IRA, but is a plan put together by an employer. Often times, if an individual leaves their employer, their 401(k) account can be rolled over into an IRA or into a new 401(k) through the individual’s next employer.

Additionally, the Roth IRA is a retirement saving account to which individuals can make contributions with after-tax dollars. If certain requirements are met, distributions from the Roth IRA will be tax-free.
For those that are uncomfortable with investing, or want to start on a smaller scale, Tomolonis offered many savings account-style options to explore as a great way to start.

First, consider seeking out saving account options that yield an interest rate. While the national average is only 0.11 percent, many new online options, such as Ally Bank and Goldman Sachs, may offer as high as 1 percent, Tomolonis said.

A Certificate of Deposit works similar to a savings account, but the individual’s money is “locked up” for a time frame between six to 18 months. Rates of a CD may be higher than a traditional savings account.

Another investment option is an annuity, which is a state-backed insurance product. Generally, money is locked up and unavailable anywhere between three and 10 years. It gains a fixed interest each year, possibly up to 3.25 percent. Investors choose the insurance company based on credit ratings. Lower rated carriers typically provide high interest rates, but have the potential to be less reliable. Tomolonis recommended doing your homework on different carriers and consulting a financial advisor before making a decision.

Bonds are “debt securities” issued by the government and companies. They have interest rates dependent on the length of the note, and the creditability of the issuer. Additionally, companies can offer junk bonds, or high yield bonds. While these bonds may offer higher interest rates, the credit ratings tend to be much lower.

Investors looking for growth and income may want to consider stocks via mutual funds, ETF’s and individual securities, Tomolonis recommended.

The three most widely watched indexes in the stock market are of the Dow Jones Industrial Average, which is made up of 30 different “Blue Chip” companies, the S&P 500, consisting of 500 different companies, and the NASDAQ, which is a traditionally tech-heavy market, made up of at least 80 percent technology companies.

When selecting what company to invest in, there are many factors to consider. Are they looking for growth companies or value? Also, it is important to begin with an investment strategy.

“Investing in equities for the long run has been the most lucrative strategy, and over time so far the markets have shown performance,” Tomolonis said about his own experience.

Traditionally, younger investors have a stronger appetite for risk, and become more conservative as they get older. However, each investor is unique with their own risk tolerance and investment objectives.
Stocks do not have to be purchased from one individual company at a time. Mutual and Exchange Traded Funds are bundles of stocks that can be purchased at once. Funds hire professional money managers to select stocks and bonds, package them together, and monitor their performance. These funds trade under ticker symbols just like individual stocks. ETF’s trade throughout the day like a stock, mutual funds trade only once, at the end of the day.

No matter how someone decides to invest, Tomolonis stresses the importance of consistency. “It’s not about how much money you make,” he said. “It’s about your financial habits. People choose to spend every penny they have. You need to make a conscious decision to put money away.”

Be sure to check out Tomolonis’s next workshop about generating income on May 21 at 10:00 a.m. at the Military and Family Support Center, Building 3435!