Over the last few months, I’ve been getting the same question – Charisse, should I invest in the stock market, a new business idea, a new investment property, or pay down my debt? This question has been coming at me from all ages, income levels, and professional careers. So….

I have one answer for you that you’re probably not going to like – it depends. But, these 3 factors will help you figure out what’s best for you now:

 

1. Time Frame. What you want to achieve in the next 12 months is different than what you want to achieve in the next 3-5 years. In the asset management world, we use the fancy word of “time horizon,” but it’s the same thing. We’re pretty much wired in American society to have things on demand, but be careful not to get caught up in wanting things now without truly understanding how long it’s going to reap the benefits of your investment. You must figure out what’s important to you now and how can you prepare, at least a little bit, for your future life, and that of your family’s.

I am wired as a long-term investor, but I often know that there are short-term (less than 12 month) goals – going on vacation and getting a little extra money to replace a broken dishwasher – that I want to hit right now. This plays out in how I allocate money in a few ways. First, I make sure that all of my debt payments (mortgage, student loan, and credit card) do not take up more than 20% of my gross income because I do not want to be hamstrung by debt. You may say, “I can’t swing that. “ If you can’t, it means that you need to get you a little more income or find a way to reduce your loan payments. Additionally, I invest predominantly in mutual funds and exchange traded funds (ETFS) over a 3-5 year period and individual stocks when I’m trying to make some short-term gains.

Other friends will tell me that they have no patience for the long-term (or even medium term) because they can be gone tomorrow. One’s culture upbringing also plays a key role in shaping our propensity to make choices for the present versus the future. If you fall in this category, good for you – just be mindful that your future self will be so pleased that you spent some time planning for her (or him).

 

2. Time to Devote. Your time is your most precious asset, and so spending the time that it takes to commit to whatever it is you’re investing in will be key. Let’s be real – it takes time to do research and consistently keep up with any investment, so do not underestimate this factor as you balance other life priorities like family, perhaps a 9-5 or independent contracting job, or just doing NOTHING – which I’ve learned is its own piece of heaven (thanks hubby!).

Of all of the investment options, starting a business will take the most time and effort. And, I’ll lump investing in real estate into this category because your business here is property management and building ownership. Whether it’s the late night hours of thinking of how you can improve that first website or minimum viable product, or securing that first customer, it takes time! The beauty of financial instruments or serving as an investor (and not the entrepreneur) in business ventures is that you do not have to put up much sweat equity.

 

3. Other Pulls on Your Cash. In my mind, cash is king. First off, I’m a big fan of ensuring that you have enough money to eat and live indoors. If you cannot sustain the basics, putting additional money toward investing will be extremely difficult. Unless you either have multiple streams of income or an inheritance, most of us also have a fixed amount of cash on hand. My mantra has always been that you should always put your cash toward the asset (stocks, real estate, start-up) or liability (e.g. mortgage, student loan, credit card debt) with the highest rate.

Over time, however, I have morphed into believing that sometimes you have to put a little money into something that doesn’t have the highest return just to keep you in the game if you can spare it. For instance, putting a few hundred dollars into a brokerage account, even once a quarter, can get you in the habit of participating in the stock market and getting comfortable with pushing the “buy” button. Yes, there are phantom stock trading platforms (e.g. Yahoo, Etrade, Fidelity) that offer you the opportunity to trade without real money, but there is nothing like   If you’ve been a saver, however, you will have more cash and choices to allocate a couple of different ways.

 

Now that you have a framework for evaluating how you should invest your next dollar, share your plan. Let me know which of the three factors is most important to helping you figure out how you will invest.

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