Did you know that the total amount of student loans held by Americans is larger than that of credit card debt? That may be a bit surprising to some. While I am well aware that most of my clients and readers of this blog are beyond their student years and probably paid off their student loan debts years ago, it’s still worth talking a bit about as the topic has become relevant over the past few years, particularly during the recent election season. There has been a lot of discussion centering around how much student loan debt has impacted the spending habits of younger generations and possibly hindered their interest in buying homes and starting families, as well as spending on big ticket items in general. Heck, there’s a really good chance that you have a child or grandchild currently paying off students debts, so for some of my readers it might just be a personal topic. Ideally, those younger generations would find jobs that pay enough to efficiently pay down those debts and allow them to save up for those big “adult” purchases (i.e. a car, a house, etc.). However, more often than not and for a number of different reasons, that is not the case. So, what does this have to do with you and your financial/retirement planning? Well, probably nothing, but it is worth noting. Furthermore, it may have long-term impacts such as slower economic growth as fewer younger people are spending on the large ticket items that can help fuel booms. Furthermore, if you have kids and grandkids weighed down by student debt, you may want to talk with them about their situation and educate them about what they can do to better their situations. Maybe they need a second job or maybe they need some guidance on smart spending habits. Whatever it is, don’t be afraid to help them get on the right path. Also, if you were planning on relying on your children to help with your retirement, such as moving in with them or having them pay for some of your needs, you may want to know whether their student loan debt early in their adult lives may have long term impacts (i.e. they aren’t able to save enough for the future). Lastly, if you are a retiree considering going back to school–and yes, they do exist–you will want to know whether taking on any student loan debt is doable. Obviously, you really only want to go back if you can do so without taking out any loans, but if you can do so for a small amount, it may be worth considering. Again, while you may not be directly impacted by student loans, it may have a long-term impact on the economy that affects your portfolio and investments, especially if it takes markets and the economy longer to recover from downturns due to enough people not spending. So, what do you know about the student debt situation and does it impact you?
If you’ve been following the stock market over the past 30 years or so, then you are probably well aware of the fact that bubbles occur and eventually they burst. It happened a little over 15 years ago with the tech bubble, followed less than 5 years after that by the housing bubble. Those bursts were felt throughout the markets and the country. billions of dollars were lost during those bubble bursts, along with jobs in many sectors and homes in many regions. Why am I bringing this up? Well, I’m using it as a reminder that despite how good things may be–and let’s not kid ourselves, the stock market is still trending upwards–there will come a time when the fun ends. After all, what goes up, eventually comes down. So what can you, as a retirement investor do to take advantage of the good fortunes while also protecting yourself (as best as possible) from the bad? Diversify and make sure to review your investments at multiple periods throughout the year or when you hear of market changes. Diversification spreads the risk around and prevents all your money from going into one area of the market. If you diversify, you can limit the damage that a downturn in one market sector can do to your portfolio as a whole. Of course, along with diversifying, you want to track your investments. That means checking your portfolio at regular intervals and checking it when you hear of changes within market sectors that you are invested in. Tech companies struggling? Make sure your tech investments are safe. Homebuilding ramping up? Maybe you should look to make some investments in that area. Those are just a couple of examples. If you need help with your portfolio or just want to talk about your risk appetite, you should of course speak with a certified financial planner, wealth manager, or investment professional.
I believe I wrote about this a number of months ago as the election season was starting to ramp up, but I feel the need to mention it again: Don’t let politics drive your portfolio decisions. In the weeks leading up to the election, it can be easy to get caught up in the theories and predictions about what might happen if a particular candidate wins or a certain party gains power. Some will take those predictions and make portfolio decisions in the hopes of getting ahead of the curve regarding how the markets might react to certain administrations. First off, it is incredibly difficult to predict how the markets will react to elections. What economic pundits predicted at the start of the past two administrations did not come to pass with the markets performing much stronger than expected. Rather, you should make your portfolio as you normally would and ignore the election when doing so. Don’t give you portfolio any special treatment between now and Nov. 3. That can be hard to do, especially with the news cycle (and social media and conversations with friends) being filled with election talk, it won’t be easy. However, trust me, it will be worth it to keep your portfolio on the same road it’s be going on.
You’ve probably heard me say on this blog that the best way to save for retirement is to start early. The same goes for investing. One of the best ways to teach your kids about the stock market and get them thinking about their financial future is by allowing them to invest in the markets. Many of the major investment platforms offer custodial accounts, which allow parents to set up trading accounts for children under 18 and which require adult permission to complete transactions. Once you have the account, you can decide how to best teach your teenager the importance of risk and investing. If you have more than one teenager involved, maybe make a game out of it and see whose investments perform the best over a set amount of time. If your teenager is more goal oriented, maybe encourage them to use the account as a way to grow money for something like a car or product they want. Whatever you choose to do, be sure to guide them and set some limits. You may want to limit what investments they can put money into (no options, etc.). You will also want to encourage them to use properly vetted resources, such as popular investment books or well-sourced blogs. Heck, you yourself may want to use it as an opportunity to read back up on the latest investing trends and advice out there, if you haven’t already. Of course, you will also want to teach your children about risk as they will most likely experience some loss. It may be hard for them at first, but if you encourage them to be patient and learn from why the investment went down, then it will be a good thing in the long run. Just make sure they don’t lose too much, or for that matter, gain too much without learning about trends and why their investment performed the way it did. With the right guidance and some sound advice, your children can learn about the stock market and hopefully set themselves up for a solid financial future. What did you wish your parents taught you about investing growing up?
“Change is the only constant.” You’ve probably heard this expression before. I believe it is sometimes attributed to the Greek philosopher Heraclitus, but it gets used often as a business mantra or by people who are seemingly always in motion. It’s also a reminder that despite our best efforts at times, change happens. I’ll admit, change can be scary, but it can also be a wonderful thing. It can force us to reflect on where we are and where we want to go. It can also provide us with an opportunity to try new things and make decisions that we have been putting off. For example, changes in the markets can force you to re-evaluate your investments and portfolio (did you really think I wasn’t going to tie this back to investing or retirement planning some way? lol.). That can be a really good thing. Markets are prone to change as companies come and go and stocks trend up and down. As such, you will need to buy and sell investments from time to time, especially if you are investing for the long-term. Same goes for your retirement planning. Over time, your benchmarks and goals will change and you will need to act accordingly. Yes, it can be a bit scary to think about having to pivot your retirement saving plan, but it can also be exciting. It can be refreshing to have a new interest or goal that fits with what you want more than what you currently have. It really all depends on how you look at it. Change can be a wonderful thing, are you ready for it when it eventually comes?
One of the worst things you can do when the market takes a dip (or a dive) is to immediately pull your money out. While it may seem logical–why lose any more money–it’s almost always the wrong move. Taking money out during a downturn makes it incredibly difficult to take advantage of the eventual upturn. If you understand the tax implications of losses, you further take advantage through smart tax harvesting (I’m not going to get into that here). Now, I’m not talking about divesting your money in one stock and investing it in another that you think is poised to rebound. I’m talking more about divesting to preserve your cash and then investing when you think things look better. Trust me, by the time things “look better,” you’ll probably miss out on a good chance to make money (the best place to invest in a stock is at the bottom…nowhere to go but up!). The best thing to do when markets take a dip is not to react immediately. Give it a little time and see what happens. If things don’t appear to get better over time (days, weeks), then you may want to consider diversifying your investments or making changes to your portfolio. If there are parts of your portfolio where things are struggling and another where things are strong, you may want to consider focusing on the stronger areas. If you need help with your investments or portfolio, as always, I suggest you take with a certified financial planner or wealth manager or another investment professional.
Thanks to technology, it’s easy to become an investor these days. All you need is Internet access and a device and you can open a brokerage account. Such ease can be exciting and make one feel as though they have more control over their finances and future. However, it can also be dangerous. The ability to invest your money with the touch of your finger can also lead to a nonchalantness about investing and money. It’s not uncommon for people to get a bit carried away with investing when they first start using apps such as E*Trade or Robinhood. A quick search of Google can turn up tragic stories of individuals who got caught up in the thrill of investing only to find themselves suddenly out thousands of dollars. Some of those sites (*ahem* Robinhood) even make an effort to get people to invest in riskier investments (*ahem* options) not so much for the investors sake, but because it turns a profit for the platform owner. Remember, despite how much research and homework you do and no matter how smart you think you are, there will always be risk involved with investing. The key is knowing the amount of risk you are willing to handle and knowing when you should walk away. For some–mostly those of you reading this blog–that’s easy to understand and do. For others, though, it can be easy to be swayed by slick marketing and stories of massive gains made by mavericks in the markets (it’s hard to verify those stories sometimes though). What does this mean for you? It’s a reminder to be smart when you invest and read up on investments and strategies and platforms before putting money out there. You should also be sure that you can handle the losses that inevitably come with investing if you do it long enough. If you are new to investing, I encourage you to read up as much as possible about it and to take time to research your investments and the risk you can handle. If you need to, speak with a certified investment professional or wealth manager. And, of course, be careful, but above all, be smart!
If you’ve been investing in the stock market over the years, then you’ve probably heard–and seen–that the stock market moves based on emotion. Things such as societal movements, politics, or financial predictions can force movements in the market to happen. This is also what makes the stock market–and other associated markets–unpredictable. If you don’t understand and respect that unpredictability you can lose a lot of money. However, you don’t have to use emotion to drive your investment decisions. In fact, you should try to keep your emotions as far away from your investment and financial decisions. Using your emotions to drive your decisions when it comes to money can lead to poor outcomes and to losses. Instead, as I’ve suggested more times than I’d care to count on this blog, you should educate yourself. Know your appetite for risk and research the stocks you plan to invest in. How have they performed in recent years? Is the company big or strong enough to survive slow business? Are you patient enough to stick through a loss for a long term gain? These are important questions and can help you to make smart, rational decisions when it comes to investing. I also strongly suggest you speak with an investment professional or a wealth manager or a certified financial planner if you have questions about investing or stocks that you are interested in investing in.
I’ve touted the importance of diversification here in many posts over the past few years. While it may seem like diversification is the cure-all for any portfolio, I should remind you that regardless of whether you diversify or not, investing is still a risky endeavor that way more often than not involves a lot of luck. That’s not to say you still can research a stock or company you invest in and do your homework–that helps immensely to determine strong performing stocks and to avoid ones that tend to be more volatile. However, no matter how the stock has performed over the past 10 years, or whatever timeline your research covers, that still doesn’t mean it can’t go sideways. What diversification does is to help you to lessen the damage that can happen to your portfolio if a stock does go sideways. Diversification allows you portfolio to absorb the loss because that loss is, ideally, not a large overall portion of the investments in the portfolio. Furthermore, if you invested in other stocks on the rise, your loss could potentially be covered by the growth of other investments. Again, I want to reiterate, though, that diversification will not automatically lead to portfolio growth or success in investing. It will just make the inevitable losses (yes, every portfolio loses money at some point if you invest long enough) palatable and less damaging. No matter what you do investing, at it’s core, is a game of luck. So, are you feeling lucky?
As I’ve mentioned in the past, investing can be a great way to grow your nest egg. With a good understanding of your risk appetite and your goals–both long-term and short-term–you can make investment decisions that can put your money to work for you. However, making cautious investment decisions can seem boring at times, especially making decisions regarding long-term goals (i.e. saving for retirement while decades away). It can also be tempting at times to play with the markets a bit and experiment with taking on a little more risk than you normally do. Now, I’m not suggesting you risk thousands of dollars or that you take on huge amounts of risk. Rather, maybe you should consider investments a little bit riskier than what you are normally doing. Use it as a way to test your comfort levels and possibly determine if you are ready for a change. Also, as with any investment, be sure to do your research and educate yourself on the stocks or investments you are looking to buy. If the risk is too great, don’t invest in it. I want to be clear, though, I don’t think you should be that risky with your retirement money or any that is vital to your financial survival. Remember, it’s pretty easy to lose money in the stock market. It’s a volatile place. Again, I’m necessarily encouraging you to go full-bore into that with all your money, however I definitely think it might be worth checking out if you have some extra money you are willing to play with. That means money you are comfortable with possibly losing and which won’t impact your financials to do so. If you are serious about investing and want to learn from first hand experience, this can be a great learning opportunity. Again, I strongly discourage using retirement funds or money you actually need to live for these investing experiments. However, if you have money to spare, even if it’s just a few hundred dollars, and you want to experiment with some riskier investments, I think it could provide a lot of knowledge. Of course, if you have serious questions about the investments you intend to make, you should speak with a certified financial planner, wealth manager, or other investment professional.