Is this a good time to begin an investment program? You bet it is. Not because the stock market will necessarily climb next month or next year, but because delaying your investment efforts may jeopardize hopes for a comfortable retirement. The sooner you start, the better. In your 20s or 30s, you have a great opportunity to watch your investments grow over the years and the luxury of withstanding market dips.
"Initiating an investment plan is difficult when you're starting a business because the temptation is to plow all resources back into the business," acknowledges investment advisor David Young of Wood Young and Co. Inc. in Quakertown, Pennsylvania. "But an investment program is vital. Don't wait for the right moment to enter the market, or you might be sitting on the sidelines forever."
"One of the biggest mistakes a young business owner can make is to ignore the necessity of saving for the future," agrees Chris Walters, vice president and Los Angeles regional manager of Mellon Private Asset Management, an investment and wealth management firm for individuals with portfolios of $1 million or more. "The majority of [a young entrepreneur's] investments should be in long-term domestic stocks; these have historically outperformed other asset classes. Also consider a smaller exposure in international and emerging market funds, which offer diversification and tremendous upside potential for the portfolio. Finally, it would be wise to include large-cap stocks, which could offer more upside potential in the next three to five years."
If you happen to be just starting an investment program, don't fear the market, counsels Young. "Dollar-cost averaging [periodically investing a set amount in a stock or mutual fund] is an effective way of investing without regard to market timing; it softens the effects of market volatility."
As does diversification. "Mutual funds are the best way to achieve diversification, and they allow business owners more time to concentrate on their businesses without worrying about individual stock picks," Walters says.
To avoid sales fees and commissions, look for no-load mutual funds. Many allow monthly investments as low as $50, which can be automatically deducted from your bank account. And talk to your accountant about SEP, Keogh and other tax-deferred plans to help maximize benefits from the significant compounding effect down the road.