By Rob Johnson
Financial literacy is not currently taught in American schools—although it should be. Young adults who establish excellent financial habits and make wise financial judgments at a young age have a distinct edge over those who do not. To put it plainly, early adoption of sound financial practices can have a significant impact on your wealth management strategy.
Below I share a few of the financial planning fundamentals I wish I had known about when I was younger.
The Power of Compound Interest
Let’s start with one of the more essential tools for growing your money: compound interest.
Any wealth management strategy must include saving money, but putting your hard-earned cash in a regular savings account won’t increase your investment. In fact, not only does your money not grow, but inflation causes the value of your money to decline. The solution? Compound interest accounts.
With compound interest, you earn interest on both your initial investment and also on any growth it makes. For example, let’s say you deposit $100 as your first investment into an account that yields a 5% interest rate. Your investment increases to $105 when you earn that 5%, but you also earn an additional 5% on the increased sum. The updated sum is $110.25.
Money market assets or bank-style accounts, such certificates of deposit, offer compound interest. Don’t forget to consider the frequency of the compounding when searching for accounts that fit into your money management plan. An account with daily compounding periods produces a faster growth in your money than on a monthly or yearly basis.
Remember to also investigate the duration of time that you have to maintain your investment funds. If you can leave your investment alone for a longer amount of time, you can see much better rewards than you would for a short-term investment.
The Importance of Paying Yourself First So You Can Save
Paying yourself first is one of the more important personal finance principles because it can have a big impact on your ability to save money and effectively pursue your financial goals. Essentially, you’re investing in your future financial stability when you prioritize your savings. This strategy helps you create an emergency fund, contribute to retirement accounts, and set aside money for significant purchases like a house or higher education.
Prioritizing saving reduces your chances of falling victim to impulsive spending or experiencing financial hardship. By putting aside a percentage of your income before paying bills or indulging in discretionary spending, you can build a strong financial foundation that supports your progress toward a strong financial future.
The Impact of a Diversified Portfolio
Another pillar of sound money management I wish I knew when I was young is having a diversified portfolio. By distributing your assets among a variety of asset types (stocks, bonds, real estate, commodities, etc.) and industries, you can lower risk and increase total returns.
Put simply, diversification lessens the effect of changes in the market. Over time, you can obtain a more steady and consistent return by offsetting the losses incurred by a badly performing asset class with another. Additionally, by matching your investing approach to your time horizon and risk tolerance, diversification can help you pursue your long-term financial objectives with confidence.
Work With a Financial Advisor
If you’ve been managing your finances on your own, it may take some mental adjustment to relinquish control to a professional for a fee. But because a financial advisor can help in so many different ways, the value they offer could more than pay for their fee several times over.
Our team at Elevate Wealth Management provides a straightforward, caring relationship with clients that have built a foundation of trust lasting decades. We share our different backgrounds and strengths to provide a collaborative, team approach for the betterment of our clients. We know our clients and the people of Wyoming live their lives with purpose and pride, and we are here to help them reach the dreams they’ve worked so hard for and leave a lasting legacy worth more than money itself.
Schedule an introductory meeting by reaching out to us at rmjohnson@frontierasset.com or 307.461.5550.
About Rob
Rob Johnson is a financial advisor at Elevate Wealth Management, an independent, fee-only wealth management firm serving young professionals, pre-retirees, and retirees in Sheridan, Wyoming, and surrounding areas.
With a passion for helping others achieve their goals, Rob is committed to working closely with clients to empower them to make the best financial decisions for their lives. Rob understands that every person faces unique circumstances when it comes to their financial future, so he will tailor his approach and recommendations to ensure clients feel confident about the direction they’re headed. Rob has an enthusiasm for customer service, which is apparent during every client interaction he has. Honesty and integrity are at the center of the advice and recommendations he gives, and he will work hard to build and maintain trust in every relationship.
Rob has a bachelor’s degree in economics and finance from Black Hills State University and is actively working toward his CERTIFIED FINANCIAL PLANNER®, CFP® designation. He is a Wyoming native who grew up at the foot of the Big Horn Mountains in beautiful Dayton, Wyoming. He believes strongly in giving back to the community that helped raise him by volunteering his time and serving as an active board member with various non-profit organizations in the area.
Rob and his wife Emma have two sons, Michael and Sammy, who are the lights of their lives. Rob has a passion for sports and is an avid golfer. During the warmer months of the year, there’s a good chance you’ll find him on the first tee. To learn more about Rob, connect with him on LinkedIn.
The views expressed represent the opinion of Frontier Asset Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While Frontier Asset Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. The use of such sources does not constitute an endorsement. Frontier does not have an affiliation with any author, company or security noted within. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and the Frontier Asset Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. Past performance is not indicative of future results.
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Elevate is the financial planning division of Frontier Asset Management. Frontier Asset Management is a Registered Investment Adviser. The firm’s ADV Brochure and Form CRS are available at no charge by request at info@frontierasset.com or 307.673.5675 and are available on our website www.frontierasset.com. They include important disclosures and should be read carefully.
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