How Engineers Should Be Investing

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by Advice Chaser
by Advice Chaser

If you work in the engineering or tech field, you’re probably used to being the smartest person in the room. But when investment advice is given in technical jargon, most engineers won’t be able to understand it no matter how smart they are. You probably know some of it is just smoke and mirrors, but how much? Who can you trust with your finances?

Luckily, the financial field isn’t that hard to understand. By educating yourself on the basics, you’ll have little trouble seeing through deliberately-confusing sales talk. And when you do receive professional advice, you’ll be able to engage with it intelligently.

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How Much Can You Do Yourself?

When at the mechanic’s or the doctor’s office, everyone’s had the experience of wondering if they can trust the professionals they’re dealing with. What if all these fancy words are just code for “there’s nothing you actually need, but I’m happy to take your money”? An educated person isn’t going to fall for a sale on headlight fluid. Nor will you take financial advice from someone untrustworthy, if you understand the basics.

Consider what parts of your financial picture you thoroughly understand, like your budget, and which you don’t, like perhaps your 401(k). Where are the gaps in your knowledge? Some parts of the financial sector are like a “black box,” in that their workings are too complex for even professionals to understand very well. But you can easily find out what the risks are and whether these vehicles usually pay off.

When you research, remember to look for advice from professionals. Books and websites on finance by financial professionals are a good source. Many financial advisor certifications require that the advisor only advise you for your own benefit, not theirs. That can’t be said of social media tips about a hot stock selling now, or your coworker’s budget advice.

Managing Risk

One of the most crucial things engineers should understand about investment is risk. Unlike software or building codes, there’s no single answer to any investment’s value. We can’t know whether it will pay off. What we can calculate is the risk of each investment. Once we compare that to the possible returns, we can rate its value as an investment.

There’s no such thing as a risk-free investment. But there tends to be a correlation between risk and possible yield: you can usually get much better returns on average from a riskier investment. If that weren’t true, no one would try those investments!

When you’re young, you are in a unique financial position as an engineer or tech professional. Few people your age make such good money with so little debt. Doctors and lawyers might earn well, but usually later in their career and with significant debt. This puts you in a prime position to take advantage of higher-risk, high-yield investments. If you lose some while you’re young, you have plenty of time to make up for it.

Still, most of your portfolio should be in lower-risk investments, like mutual funds, that you buy and hold. As you get older, more of your portfolio should shift into these investments.

How Much Should Engineers Dedicate to Investments?

Some advice geared toward engineers goes like this: max out your 401(k), your IRA, and your HSA if you have one; save half your take-home pay. This is probably based on the assumption that you are bringing home extremely high pay and are mainly looking to reduce your tax burden.

Your actual budget will depend on your salary. Especially when you’re young, you don’t need to max out all your contributions to everything unless you can afford it. Paying off debt and buying a home (if you want one) are higher priorities.

One good tip is to save or invest half of every raise you receive. That way you can still upgrade your standard of living somewhat, but with every raise you’ll improve your long-term situation as well. The earlier you’d like to retire, the more you should invest.

Investment Advice for Engineers

If you choose to hire a financial advisor, seek out someone knowledgeable about your specific situation. They will be able to help you maximize your investments, and also educate you about better ways to manage your money. Advice Chaser can connect you with an advisor seeking engineers and tech professionals. Contact us to start the matching process.

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