Investment Advice for Beginners

Investment advice from a financial advisor should anchor on the basic steps to a solid financial foundation advocated in this site.

Investment advice should be based on a holistic approach to financial management. If your financial advisor is an investment broker, his solution is biased towards stock and mutual investing which are popular investment vehicles. Investing decision anchored on a holistic investment should be an integral part of your financial strategy.

In the financial plan pyramid, cash flow management should logically be the first financial solution. Cash flow analysis is a tool for assessing your financial position, identifying financial black holes, and finding ways to improve cash flow. The goal of effective cash flow management is to increase net cash flow to increase capacity to undertake the next steps to achieve a solid financial foundation. Investment is the last step in the financial management ladder. It is not a sound investment advice if the following conditions are net met:

1. Your monthly earning (cash inflow) is higher than your expenses (cash outflow). If this is not the case, it would mean that you do not have extra cash for investment. To improve your cash flow, you should track your spending to identify items you can possibly trim down or eliminate. With discipline and determination, you will be willing to let go of things you can live without. The solution on the other side of the equation is to find ways to earn extra income.
2. You are debt free. As much as possible, consumer debt should be zero. The interest payment for your debts could just write off interest earning from investment.
3. You have an emergency fund equivalent to at least 6 months worth of expenses. You really can’t be sure when emergencies happen. The emergency fund should be readily accessible when you need it. It can be deposited as a regular savings account in banks for safekeeping. If you wish to earn higher interest, 30-day time deposit can be an alternative vehicle for safekeeping your emergency fund. You may end up redeeming your investment to cover emergency expenses.
4. You have protection for loss of income due to death, disability and accident. Insurance is instant money in case something happens to the insured. If you have not prepared for this eventually, cashing out your investments is inevitable.
5. You have started your long term health care plan. Investment on long term health care is considered the core of building a solid financial foundation.

These conditions are are non-negotiable. If these conditions are in place, the next step is to learn the basics of the different investment vehicles: stock, bonds, money market and unit investment trust fund. Understanding how these instruments make your money grow is essential to your investing journey. This is the best investment advice you'll ever have being your own financial advisor.